Economic Factors In The United Arab Emirates

It is important to consider the economic climate in the UAE prior to making the decision to purchase property there. Below are some key factors that will assist you with your research.

The UAE is well recognised in the global property world as a highly lucrative investment opportunity and international joint ventures are working for the financial benefit of both the local and international population.

A succession of multi-billion-dollar projects has transformed emirates like the inimitable Dubai, and now others such as the likes of Abu Dhabi and Ajman, into prosperous centres of corporate activity.

Economic Expansion

The UAE possesses one of the most highly developed and industrialised economies on the planet, as reflected in its GDP per capita, ranking 5th in the world and 3rd in the Middle East, after Qatar and Kuwait. The GDP growth rate in 2007 stood at 7.4%, while predictions from the Economist offer an average forecast for the period 2008 to 2012 of an average 7.6% p.a.

The UAE boasts one of the fastest growing tourist sectors in the world, attracting record numbers of international jet-setters and investors alike. UAE tourism already accounts for 0.5% of worldwide tourism, and the tourist industry in the Emirates is forecasted to grow by some 4.9% per annum until 2017. A frenzy of real estate activity is producing a vast array awe-inspiring hotel and resort developments in a bid to supply an unprecedented demand for top quality property in the UAE.

Detailed planning for economic growth was a strong feature of UAE government planning during 2006-2007, with the activation of initiatives such as Plan Abu Dhabi 2030 and the Dubai Strategic Plan 2007-2015 high on the agenda.

High Demand for Real Estate

The oil industry has already attracted a surge of expatriates and foreign workers who together make up more than 75% of the population. As this sector of the population continues to grow, an ongoing demand exists for top quality commercial and residential property in the UAE. This has helped to make the UAE one of the most buoyant and dynamic construction sectors in the world and the third largest industry in the UAE, after oil and trade.

Average 2006 hotel occupancy levels in Dubai alone reached over 90%, reflecting the general shortfall of new constructions in the UAE. Mammoth construction projects have since been underway, particularly in Dubai, Abu Dhabi, Ras al-Khaimah and Ajman, not only within the services sector, but also in the residential and infrastructure sectors – all signs of serious investment activity and growth in the real estate market of the UAE.

Capital Growth

Following Dubai’s footsteps, property prices and rental values are now poised to soar in many of the other emirates. For example, land prices in Abu Dhabi this year have already risen by 75%, according to HSBC Middle East. Timely investors expect to witness rapid and substantial price increases as property demand and construction costs continue to spiral ever upwards.

A recent report from EFG-Hermes, a regional investment bank, has confirmed strong predicted growth in property market of Abu Dhabi. This comes as a result of huge demand, a fast growing population and the liberalisation of the real estate sector. A spokesman for the bank has said, "We estimate that average residential real estate prices will increase by a further 20-25% over the remainder of 2008, with a total of more than 100% for the whole of 2008, and by 15-20% in 2009".

Strong capital appreciation is expected to continue in the UAE for some years to come, in line with ongoing economic success and un-sated demand for new properties. Capital growth, combined with rental yields of 6-10% p.a. make now an ideal time to invest in UAE property.

The Property Market

State-of-the-art construction with luxury facilities, along with an advanced tourism infrastructure, including tax-free shopping, beautifully designed gyms, swimming pools and an abundance of giant construction projects continue to draw discerning investors, homebuyers and holidaymakers to the UAE. With expatriate workers representing some 75% of the population, it is clear that it is this sector that dominates the real estate market, settling for no less than the very latest in luxury commercial and residential accommodation.

The UAE’s thriving economy, backed by highly favourable tax conditions, makes it an ideal location for a growing workforce of highly paid tax-free workers, all seeking accommodation to buy or rent. Meanwhile, infrastructure programmes are constantly underway in order to maintain the quality of UAE services to the highest of international standards, indicating excellent prospects for overseas investors. A recent government report outlined that over 1,800 projects, worth around US$27 billion, are currently being carried out in the Gulf region.

Tax Free Environment

The absence of taxes is a clear incentive for investors and this advantage draws many foreign companies to establish activities within the numerous free zones and industrial cities of the UAE.

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