Unsurprisingly, the UK has already been feeling the heat of its vote to leave the European Union. London on Monday (July 18) woke up to the news that the forecasters at EY Item Club have indicated that the UK will have to pay quite a bigger price than predicted or assumed so far by any analyst.
Item Club has cut its growth forecast from 2.3 per cent to 1.9 per cent for 2016, and from 2.6 per cent to just 0.4 per cent for 2017 saying the Brexit will have severe confidence effects on spending and business investment.
Its tremors, meanwhile, have started to feel even nearly five thousand miles away in Dubai, as new reports suggest.
Real estate consultancy JLL today suggested that rent values in Dubai’s office and residential sectors witnessed a downward slope in the second quarter as Brexit brought “slight uncertainty into the market”.
In its Dubai Real Estate Q2 Overview report, which evaluates the impact of Britain’s exit from the EU on the emirate’s real estate market across office, residential, retail and hotel sectors, the consultancy said the decision has seen an adverse effect on the retail and hotel sector. Due to the devaluation of the pound, Dubai and the MENA region as a whole has become an increasingly expensive destination for European visitors, it noted.
“Even though it is too early to predict the long-term implications, overall there is a slight probability of British investors being negatively impacted by the devaluation of the British Pound following Britain’s decision to exit the European Union,” said Craig Plumb, Head of Research, JLL MENA.
“However, we believe the effect of the decision will have temporary repercussions as a substantial number of British investors who work and reside in the UAE avoid sourcing their income in sterling. If we dissect the market further, particularly for residential, we notice that expatriates in Dubai are most likely to continue renting their homes instead of switching to ownership, resulting in sales being more negatively affected than the rental sector,” remarked Plumb.
Earlier this week, real estate portal Propertyfinder revealed that just 30 per cent of the residents have owned properties in the UAE while a staggering 70 per cent, half of whom have lived in the here for at least five years, continue to rent citing affordability concerns.
Propertyfinder’s Group COO Lukman Hajje, however, believed that Brexit will mean that British expats will be even further enticed to stay put here in the UAE and will attract further of their fellow countrymen to the Emirates over the next five years to avoid the turmoil that many feel they will be subjected to.
Nonetheless, Plumb expects that Dubai residential market will “easily recover in early 2017” if external factors stabilize over the rest of this year.
Meanwhile in the UK, the supply of homes dropped at its sharpest rate to date and buyer demand fell to an eight-year low in June after 52 per cent of the citizens voted to leave in the referendum, according to the Royal Institution of Chartered Surveyors (Rics).
Travel and tourism could suffer
JLL said that Dubai has become an increasingly expensive travel destination for many European tourists with the 4 per cent fall in the Euro so far in 2016 and more recent falls in the value of the British pound.
“This is creating challenging conditions for more luxury brands and increased demand for the midmarket segment. More operators and owners are now investing in midscale properties and several projects have been announced by brands such as Rove Hotels, Ibis, etc.,” says Plumb.
Saif Mohammed Al Suwaidi, the director-general of the General Civil Aviation Authority of the UAE, has remarked that the cheap pound and slowdown in the UK’s economy could result in drop of passengers from the country, which he said was a “key” market for UAE carriers, The National reported on June 27.
“The reaction could affect the purchase power of the British people who are coming to the UAE, or flying to Australia via the UAE,” the paper quoted Al Suwaidi as saying.
Ahead of the vote, Reuters reported that Tim Clark, president of Dubai-based airline Emirates has expressed concerns about the impact on travel across Europe.
“My concern is what will happen in the rest of the EU,” Clark told reporters at the annual IATA airline industry meeting in Dublin on June 2.
“Instability means lowering demand, lowering in demand means less people travelling on aeroplanes. How long that would last, I don’t know,” he said.
JLL also expects that several hotels announced for 2016 in Dubai may be postponed for opening to 2017, partly due to delays in construction and funding and the overly ambitious timelines initially set by some developers.
(This article first appeared on TRENDS’ sister publication AMEinfo)