Key currency fluctuations 'linked to Dubai's H1 property price drop'

Fluctuations in Indian, British and Pakistani currencies during the first eight months of 2015 have impacted Dubai's real estate, according to a new report.

Phidar Advisory's latest residential research note showed that house prices in the third quarter of 2015 continued to decline, compared to the previous quarter.

However, it said the most significant finding was the relationship between currencies and Dubai real estate prices.

“Analysis reveals a significant relationship between three key foreign currencies and Dubai real estate prices,” said Jesse Downs, managing director of Phidar Advisory.

“Unsurprisingly, the key currencies are the Indian Rupee, Great British Pound and Pakistani Rupee. Changes in Dubai property prices appear linked to fluctuation of these currencies. So, currency trends may help us to understand and forecast local property prices.”

The report said apartment lease rates decreased a nominal 0.4 percent, while sale prices fell by 2.7 percent, pushing yields up to 7.4 percent.

Lease rates for villas decreased 1.3 percent and sale prices dropped by 2.6 percent, which pushed yields up to 4.8 percent.

“The increase in yield is a positive and necessary trend in Dubai real estate,” said Downs. “Especially in the context of global volatility, this is part of a healthy and necessary, market correction.”

Phidar’s Dubai Real Estate International Demand Index (REIDI) fell significantly in the first half of the year, driven primarily by currency fluctuations, indicating a very low propensity for international real estate investment into Dubai.

In H1, the midpoint exchange rates for all currencies included in the REIDI were down against the dollar compared to 2014, except the Chinese Yuan and Hong Kong Dollar.

“Sales volumes for apartments and single family homes were down in July compared to the previous month, but marked a surprising increase compared to July 2014,” said Downs. “This is likely due to seasonal travel patterns shifting around the holy month of Ramadan.” 

In H1, apartment transaction volumes were up 3 percent compared to the same period in 2014, but transactions for villas, were down 3.2 percent compared to H1 2014.