I read other day that Dubai developer Damac Properties has confirmed that work on its major golf-course projects including the Trump International Golf Club Dubai are on track. Good news indeed!
Regardless of what you think about Donald Trump, he has established an immediately identifiable global brand and there is no doubt that he will influence the economy of Dubai and, more specifically, the property industry here.
But I am not talking about the Donald who “dabbles” in real estate, construction, hospitality, entertainment, book and magazine publishing, media, model management, retail, financial services, board game development, food and beverages, business education, online travel, airlines, helicopter air services, beauty pageants (etc. etc.) here …
… I am talking about the next President of the United States or POTUS.
As POTUS, decisions (and Tweets for that matter) made by Donald will influence the strength of the US Dollar which just so happens to be one major issue that is likely to face Dubai’s Real Estate Industry in 2017. Already, the campaign promises, rhetoric and ubiquitous tweets have already given rise to the “Trump” effect and, combined with the US Federal Reserve interest rate increase of December 14, has already driven the USD to its highest level in almost 15 years.
What’s more, it is likely that, given the Feds intention to embark upon at least 3 interest rate hikes in 2017, the USD will remain at this elevated level for at least the first 6 months of 2017 which is likely to dampen the amount of investor capital that flows into the property market.
A strengthening US dollar, in an industry where 40% of purchases are made by investors that hail from countries whose currencies float freely, could have significant effects.
Potential investors from India, Pakistan and China will find it more expensive to invest in the emirate, just as Russian investors have over the past 3 years as the ruble devalued.
A strengthening US dollar will also make property in other markets such as the UK, Asia or Europe more attractive, essentially putting pressure on the amount of capital being invested in Dubai.
Meanwhile, it appears that the on-going saga of the Brexit implementation is likely to carry on for some time, probably leading to a continuance of a weak British pound for the foreseeable future. The local property market is likely to continue to feel the pressure of the Brexit effect.
So, what is the likelihood of a strong USD in the first half of 2017? … very likely !
But it isn’t all doom and gloom … far from it.
What happens in the latter half of 2017 is a bit more of a mystery but, already, pundits are saying that the Trump effect will not last and that his campaign promises regarding fiscal, trade and immigration policies will be very difficult to achieve.
If so, and given the Federal Reserve’s history of changing course on predicted interest rate hikes, it is not unlikely that we could see a weakening of the USD sometime on the latter half of 2017. Once we get clarity on the likelihood of this occurring, we could see confidence growing amongst investors and capital flows reverse, to the benefit of the local market.
From a macro level, Dubai needs people to support an economy that is expected to grow at a targeted 4%+ in 2017 and beyond. Underpinning this growth trajectory is a commitment and determination to deliver on initiatives such as the 2020 World Expo and, in 2017, we will see the countdown to 2020 and the massive infrastructural investment associated with the event markedly gather pace.
While Dubai’s reliance on oil is minimal due to its economic diversification initiatives, the recent OPEC (and others) agreement to cap oil supply resulting in in higher oil prices is, nevertheless, welcomed. This augers well for a return of the Russian investor whose ruble has been the best performing currency for the last 3 months but should also see increased capital being available to local investors.
Tourism and trade is flourishing in Dubai and the focus of spending has been on new projects to grow these important revenue generating economic segments and further diversification. The launch of 2 major theme parks in 2016 will ensure Dubai attracts over 15 million visitors in 2017, continuing a growth trend of approximately 10% per annum since 2010 and is well on track to attracting over 20 million visitors in 2020.
So, I see 2017, the first year of Donald’s reign as POTUS, as being a year of two halves … first half of the year being really a continuation of the market uncertainty that has been such a characteristic of 2016, as the world comes to grips with what the new POTUS can actually achieve …
… while the latter half of 2017 to be more positive, with an increase in investor confidence and therefore investment activity, property values and first home ownership as the tangible and real effects of world events, such as the US elections and Brexit, that so surprised us in 2016, begin to become more apparent and the risks associated more assessable.
Rather sooner than later, I think!