Plucky Dubai Gets the Balance Right

Hit Hard, Hitting Back

Corona & Aftermath March 2, 2021

Last year, Dubai registered a surprisingly sharp decline in its population. Almost eight out of every one hundred inhabitants left the country as the Corona Pandemic and a vertiginous drop in oil prices unsettled both nerves and the economy. Key sectors such as real estate, tourism, and retail suffered a severe blow. Property developers in particular are facing trying times and have tapped their liquidity to stay afloat.

Analysts expect no major failures since most Dubai-based real estate companies still enjoy access to funding and have been proactively managing their cashflow and slashing overheads. However, recovery to pre-pandemic times is expected to take time with only marginal improvements anticipated this year.

Expo 2020, the 35^th World Expo now scheduled to go ahead between October 1 2021 and March 31 2022, will undoubtedly offer some much-needed solace to the hammered tourism and hospitality industries. The normalisation of diplomatic ties with Israel and Qatar also bodes well. However, the biggest boost by far is expected from the United Arab Emirates’ highly successful immunisation drive which has already delivered jabs to 56% of the population, driving the infection rate – the dreaded r-number – down to 0.88.

Real estate professionals are reporting the arrival of the first opportunistic investors drawn by attractive discounts. According to Hussain Sajwani of Damac Properties, the slowdown of the property market already started in 2018: “That soft landing became a hard one because of the Corona Pandemic. Prices of resale units have retreated by about 10% on average and are now lower than those of new developments. It is a great time to buy.”

Though Mr Sajwani does not foresee a further weakening of the market, he does admit that a return to the boom times of the early-2010s is not likely to occur soon: “The soft market is here to stay for another year or two with very few new projects being launched. However, Dubai will undoubtedly emerge from the pandemic stronger than before. The housing market will eventually tighten at which point new projects get underway and prices resume their rise.”

Tentative Recovery

Mo’asher, the country’s official real estate price index, in January recorded some 3,300 sales with a transaction volume of $1.83 billion – a jump of 15.5% in numbers and 37.7% in value over January 2020. The index, a joint effort of Property Finder and the Dubai Land Department, detected a pronounced upward trend in the secondary (resale) market which now represents 72% of all transactions. Mo’asher also detected a promising rebound of the overall property market in the fourth quarter of 2020, providing a slim silver lining to an otherwise disappointing year.

Last year, Dubai’s GDP contracted by 10.8% (UAE -6.6%). In its most recent country report, S&P Global Ratings predicted that the economy would return to its 2019 level (in dollar terms) only in 2023 with most sectors feeling the pressure of the pandemic’s fallout. The ratings agency did, however, admit that its outlook may prove a bit too pessimistic in light of the UAE’s exemplary and world-beating vaccination campaign which could provide a significant boost to business as the country may become a safe haven for tourists and businesspeople alike.

Whilst most developed nations tightened restrictions as winter set in, Dubai took a calculated risk by reopening the economy early, betting that its vaccination programme would deliver early results – as it did. Business trackers recorded a fairly robust uptick in activity from December onwards with non-oil employment levels rising and GDP expected to inch up 1.3% in 2021.

Early on, the Dubai government came in for considerable criticism over its decision to ease up on the lockdown. As a result, cases quadrupled to almost 4,000 a day by the end of January. New infections have since dropped to about 3,000 daily with the country managing to sustain a covid-19 fatality rate of just 0.3% – one of the world’s lowest. Dubai also maintains the world’s highest testing rate at 1.5% of the population daily.

According to Amer Sharif of the Covid-19 Command and Control Centre, the balance between the safety and wellbeing of the population and economic sustainability has been right for a city state and global logistics hub that relies on cross-border traffic for more than half of its economy. Authorities have been cautious with decreeing travel bans and have only restricted direct passenger flights from the UK and South Africa due to novel virus strains.

Reforms

True to character, Dubai quickly positioned itself as the prime hub for vaccine distribution in the Middle East and beyond. The UAE has unveiled plans to locally manufacture China’s Sinopharm vaccine later this year whilst also trying to secure a head start as the world’s first ‘vaccination tourism’ destination, catering to those unwilling to wait for a jab and able to flash plastic.

National flag carrier Emirates also found a novel way to raise cash by giving its passengers the option to pay extra to block adjacent seats on its flights. Though first introduced by Air New Zealand, the Dubai-based carrier has upped the ante by allowing economy class travellers to buy up to three adjoining seats for prices ranging from $55 to $165.

In another surprise move, the UAE launched a programme to offer Emirati citizenship to select foreign professionals. Ranked as one of the best in the world for mobility, UAE passports will be offered to investors, scientists, doctors, artists, intellectuals, and others with ‘special talents’ whose ‘bright minds’ contribute to the development and prosperity of the country. UAE royals and officials may nominate deserving candidates with the cabinet having the final say. Almost nine out of every ten UAE inhabitants are foreign nationals. The initiative is unique in the wider Gulf Region where paths to citizenship are few and narrow.

The initiative follows a string of progressive reforms that include full ownership by foreigners of businesses outside free zones, legal recognition of cohabitation ,and the sale of alcohol without a license. According to a government spokesperson, the easing of restrictions seeks to encourage expatriates to invest money – and their future – in the country, thus ending the currently prevailing attitude amongst foreign nationals to make as much money as quickly as possible and then leave for home. In time, the reforms are expected to add billions to the local economy and forge a more inclusive society.

Cover photo: Dubai skyline as seen from the marina.