|09-22-2014, 01:46 PM||#1|
UAE house prices push inflation higher, dilemma may be over
At the time economic indicators are pointing to a significant improvement in UAE economy and brilliant outlook, inflation remains one of the key challenges facing policymakers.
Data released yesterday showed that the main inflation gauge, the consumer price index, rose to 2.42 percent in the year ended August from the prior of 2.33 percent. On the monthly basis, the reading climbed 0.43 percent from 0.09 percent in July.
By taking a deeper look we can see that the key driver to the rise is the 2.9 percent increase in housing and utility costs, which accounts for nearly 40 percent of consumer spending in the country. Furniture and other items edged up 4.86 percent from a preceding of 4.61 percent.
In Dubai, CPI for August signaled its highest level in five years by marking 3.5 percent, while in Abu Dhabi the annual CPI for July reached 2.8 percent, where in both housing and utility price increases were the main reasons behind the rise.
What are the main reasons behind the rise in house prices?
Perhaps one of the key reasons behind the rise in property market price is the economic improvement in the UAE economy .
UAE continued to act as a safe-haven destination amidst the political instability encountering many countries in the region. Therefore, tourists and investors are predicted to continue to resort to the UAE in the coming period.
The International Monetary Fund expects economic growth to reach 4.8 percent this year and 4.5 percent in the coming years. The progress in GDP growth is likely to be buoyed by the diversification in economic growth aspects the UAE is pursuing.
The government is currently working hard on lowering their dependence on hydrocarbon products by looking for other alternatives that can attract investors and tourists.
Dubai’s service sectors will probably continue to underpin growth, after participating with 5.2 percent in 2013, supported by public investment projects and strength in services sectors such as tourism, logistics, finance, and real estate.
The main trends now are in favor of making Dubai a hospitality and education, while Abu Dhabi is diving into areas such as petrochemicals, logistics, financial services, aviation, renewable energy, and cultural tourism.
The megaprojects announced over the past 18 months, especially in Dubai, are also predicted to be key attraction for more capital inflows. This month, Dubai developer Omniyat has announced that it plans to launch three “mega-projects” worth Dhs3.5 billion during the upcoming property show, Cityscape Global 2014, in Dubai.
Moreover, the Expo hosted by Dubai in 2020 has created more pressure on house prices on expected increase in tourism and investments. The supplied number of houses is below the high demand, thereby causing a price pressure.
Glimpse of hopes
As a solution of the short supply and rise in residential rents in Dubai, around 19,000 new homes are scheduled to come into in the market as soon as next year, according to the CBRE.
A report released on Sunday showed that rents in Dubai slipped for the first time in ten straight quarters after the establishment of new projects. The CBRE said rents plunged 1 percent in the quarter through September. The report illustrated that Tecom C and International Media Production Zone saw a drop of around 3%, while in Jumeirah Lakes Towers, Business Bay, Palm Jumeirah, Motor City and Dubailand rents slumped by 2%.
"The expected new supply across the emirate should help to keep rental inflation in check, controlling the spiralling cost of loving that has seen rents jump close to 50% during the past two years," the CBRE report said.
Latest projections signal the real estate sector will record a growth between 15% to 25% by the end of 2014.
Performance of the real estate sector companies
The sector is predicted to resume its recovery, following the 2007 global housing bubble which hit the United States, where the sector in Dubai and Abu Dhabi has been showing remarkable progress over the previous six months.
The following charts show the rebound that took place since July after downside trend, where the new direction has built a strong support that could help shares of real estate companies to remain firm.
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