Posted: January 30th, 2022

An Investigation of the Impact of the Financial Crisis on the UAE Real Estate Market

Background
Considered one of many marked indications of monetary progress and effectivity is the diploma of investments and actions taking place inside the improvement and precise property market (World Monetary Evaluation, 2012). This assertion is definitely true for the United Arab Emirates which over the previous decade has recorded sturdy progress in its precise property market on one hand. And nevertheless has seen marked decline due to the worldwide financial catastrophe which began in 2007. The catastrophe has introduced on necessary decline to the true property progress and actions of the UAE monetary system earlier to which the Emirates liked an unprecedented precise property progress which was above one other inside the Gulf Firm Council (GCC space) (Kamco Evaluation, 2010). In nominal time interval, evaluation reveals that the commerce recorded a CAGR of 20% from the early 2000s to 2007 and as of 2007 the market confirmed a strong progress cost of over 21% with precise property constituting about eight% of the nation’s complete GDP estimated at over (15 billion USD) (Whatley, 2011).
Given the nation’s partaking place as a worldwide vacationer and funding trip spot, infrastructural progress and progress of vacationer web sites and resorts along with totally different leisure and hospitability sectors has buoyed the true property progress of the nation. Actually earlier to the financial catastrophe, requires for properties have been talked about to have significantly outweighed present in every personal and industrial precise property markets (Kuwait Finance House, 2011). Actually, in accordance with the Kuwait Finance House (2011), “there’s nonetheless a shortage of fashions inside the residential and industrial segments due to the unprecedented monetary enhance, extreme employment progress, worldwide companies establishing base inside the nation, and enormous inflow of expatriates”. The Kuwait Finance House extra notes that the precept parts underpinning the Emirates quick precise property market progress are: Secure macroeconomic foundation, Public expenditure and enormous fiscal surplus, Buck-dirham peg and the report extreme inflation costs offered that stubbornly extreme costs of inflation inside the nation rationalises funding selections into the true property market since property is used as a hedge in the direction of inflation. It has been well-known definitely that inflation has overtaken official lending costs inside the Emirates thus it is cheaper for people to borrow than to take care of money in deposit accounts, subsequently precise property funding is taken into consideration as a sensible methodology of hedging in the direction of inflation (Albayan, 2009).

Together with the above stated parts, the Kuwait Finance House moreover signifies that part of the drivers of the Emirates precise property market are inhabitants progress, appreciable liquidity and eventually the provision of Islamic banking. The irony of the true property market progress of the monetary system is that whereas lots of the parts which gave rise its emergence has helped to hedge in the direction of the worldwide financial catastrophe on the very start of the catastrophe, many of the parts moreover contributed to its decline. The financial catastrophe of 2007 did not start to unfold on the Emirates monetary system until the third quarter of 2008 nevertheless when its impacts downed on the monetary system, it put to test a progress that has been unprecedented in any space inside the Heart East for the earlier 10 years (Albayan, 2009). In step with Kamco Evaluation (2011) on the heat of the financial catastrophe in 2009, the federal authorities requested the Dubai World which is its official precise property funding firm to stop all funding actions until March 2010 due to what it described as ‘horrible impression of the crises until when its impression would possibly want subsided. Since 2009, the Dubai World has laid off over 10,500 improvement staff with Dubai World’s debt standing at over $59 billion. As of 2009, the emirates debt was put at $80 billion. Whereas at first quarter of 2009, the Abu Dhabi funding firm offered to help Dubai amidst its precise property market collapse, Abu Dhabi moreover felt the impression of the catastrophe due to the worldwide catastrophe.
As of the first quarter of 2009, the true property market plunged by nearly 70% of the pre-crisis value and of the 980 ongoing precise property initiatives in Dubai, solely 47 have been completed in 2009 with about 500 registered with the Precise Property Regulatory Firm (Rera) cancelled. Since most funding into the emirate’s precise property market have been from merchants abroad with over 70% funding being FDI, the catastrophe which started from the USA and Europe unleashed its impression on the emirates as merchants could not get funds from their western financiers and the pace of financial liquidity which initially elevated the catastrophe decreased inside the monetary system. Albayan (2009) moreover notes that lots of the parts which led to the requires of precise property inside the emirates have been stunted. As an illustration he notes that the demand for tourism declined significantly thus affecting resorts cost of occupancy. This moreover led to the impression of the catastrophe felt in ongoing developments. Whereas plenty of accounts have been put forward to rationalise the true property market decline in relation to the financial catastrophe, data regarding the nation’s precise market decline amidst the catastrophe stays to be skewed. Along with, as a result of the market stays to be struggling to come back again once more to the pre-crisis interval, there are concerns that if the true causes to the decline aren’t acknowledged, there shall be drawback in shifting forward and reaching the needed progress. In view of this background, the proposed dissertation will critically uncover the impression of the financial catastrophe on the true property market. The dissertation is anxious with determining and inspecting the precept causal parts accountable for transmitting the impression of the catastrophe on the true property market and the assorted strategies which have been employed to mitigate future impacts. The subsequent are the actual objectives and targets of the dissertation.
Evaluation Targets:
Look at the similarities or variations between UAE precise property markets, and other people inside the UK.
Confirm the the explanation why the worldwide financial catastrophe could have had an impression on the UAE precise property, significantly given variations in banking concepts.
Confirm the operate of Islamic banking in mitigating the impression of the financial crises.
Look at the direct and indirect impacts that the financial catastrophe had on the UAE precise property market, and its subsequent impression on the UAE monetary system.
1.three Evaluation Question
How has the financial catastrophe impacted upon the UAE precise property market
2.zero Literature Overview
The 2007 world monetary and financial Catastrophe which started from the US subprime mortgage catastrophe has affected almost the entire worldwide areas world vast given the interconnectedness of the worldwide monetary system. The catastrophe which led to the collapse of plenty of well-known institutions harking back to Lehman Brothers moreover led to the bailout of financial institutions, and the near collapse of many governments along with downturns in shares markets world vast (Bob, 2012).
On account of the catastrophe, there have been credit score rating default points, damaging fee of curiosity actions, inflation cost fluctuation and plenty of different distortions inside the financial settlement of many fiscal obligations and agreements. As a result of the credit score rating catastrophe led to the collapse of financial institutions, it grew to turn out to be problematic for merchants to expend additional on their enterprise commitments and financial obligations as borrowing grew to turn out to be squeezed as a result of the liquidity ratios of many banks nearly diminished (TIME Journal Friday, April 10, 2009). Whereas the catastrophe has unleashed its impression on every monetary system and the Emirate’s monetary system particularly on one hand by its heavy financial implication, it has nevertheless had giant impression on totally different Emirate’s industries. As well-known by Kamco Evaluation (2011), the financial catastrophe started to impact the UAE by the decline of vacationers and tourism actions which extra led to decreased demand for housing and precise property along with hospitality and resorts particularly. Kamco Evaluation notes that since merchants earnings started to nosedive due to low lodge occupancy and diminishing tourism actions which as quickly as fuelled the true property market, this led to falling earnings and merchants started to abort new initiatives. As well-known by Wam (2010), when the catastrophe started in UAE in late 2008, over 150 precise property funding initiatives have been referred to as off by merchants who had started to fall into trouble with their financial institutions referring to their financial agreements. The Citibank notes that: “precise property initiatives worth 170 billion USD have been cancelled given that financial catastrophe explosion with rents seeing a decline of over four fifths since 2008. Moreover, Al Futtaim – a Precise Property group in Dubai in the midst of the financial catastrophe stopped work on the Dubai Competitors Metropolis which was billed to worth nearly three billion USD. Equally, essential initiatives have been stalled harking back to lodge and totally different developments have been stalled. As an illustration, four Seasons Resort and the Al Badia Enterprise Centre which might be essential precise property progress initiatives have been stopped. In step with the Govt Journal, the company has taken this step as a approach to revenue from an additional fall in improvement costs due to the financial catastrophe, which could enable it to chop again its payments.
On the similar time, the UAE authorities which has liked nearly a decade of surplus fiscal regime had started to essentially really feel the impression of the catastrophe because the federal authorities debt has quickly risen to over $30 billion as of early 2008. The federal authorities’s harmful fiscal place led it to order the Dubai Firm to stop all precise property market actions whereas the heat of the catastrophe subsides. Whereas the Kuwait Finance House had in 2008 earlier predicted that the UAE just isn’t going to essentially really feel the worldwide credit score rating squeeze as a consequence of private consumption progress that is extra more likely to keep sturdy along with the inhabitants progress of expatriates inside the nation who boosted shopper confidence. The financial catastrophe at its peak contrarily affected the enlargement of private consumption in plenty of strategies. In step with Mintel Evaluation (2010), “since personal institutions have been unable to accumulate credit score from banks to take care of fully totally different initiatives and requires for almost completely all suppliers declined, personal consumption progress was affected to so much that it took the UAE once more to a pre-20 12 months interval when it could the nation could not be found on the face of the earth”. Following the catastrophe, the federal authorities has taken plenty of steps to mitigate the impression of the catastrophe (World Property Info, 2011). The central monetary establishment has for instance begun to overhaul the banking system by elevating monetary establishment’s liquidity ratio as a approach to encourage banks to current credit score rating whereas the capital base has moreover elevated (Hatoum, 2012). On account of the steps taken by the central monetary establishment and totally different authorities corporations, the UAE actuality market has began to emerge out of the catastrophe. Dubai’s residential precise property market is lastly recovering after hitting bottom, whereas neighbouring Abu Dhabi continues to wrestle. A property index printed by Zawya Dow Jones (2012) reveals that the home prices in Dubai observed a rise of nearly 7.6 % for the 12 months at first of 2012, nevertheless prices in Abu Dhabi dropped 4.1% within the similar time interval.
three.zero Methodology
The methodology is an important ingredient of the evaluation course of which reveals the design elements of the evaluation notably with regard to data assortment and the adopted methods along with their justification. Accordingly, this a part of the proposal models out the proposed methodology of the dissertation. The current literature reveals the existence of two approaches to evaluation: significantly the deductive and inductive methods (Saunders et al, 2003). Whereas the deductive methodology is leaned in course of a scientific evaluation or understanding of data along with the connection between variables, the inductive methodology owes so much to gaining an understanding of the meanings individuals hook up with events along with the evaluation context (Saunders et al, 2003). The deserves of every approaches have been considered useful for the proposed dissertation; subsequently every the deductive and inductive evaluation shall be employed. The inductive methodology will employed particularly in order to have the flexibility to understand the broad experiences, causes, points and needed parts which underlined the worldwide financial catastrophe and the way in which it affected the true property market of the Emirates. As a result of the strategy which helps to know events and the way in which they occurred, it is anticipated the deductive methodology will present notion into totally different broad factors referring to the financial catastrophe and its broad outcomes on the UAE actuality and totally different markets. The inductive methodology nevertheless shall be employed primarily based totally on the need to critically analyse the important thing outcomes of the catastrophe, the strategy will even help to appreciate data into numbers and figures which might be key to understanding the true nature and outcomes of the catastrophe. The tactic can be extraordinarily favoured as a consequence of what Hussey and Hussey (1997) describe as plenty of the traits of the deductive evaluation methodology which inserts successfully into the targets of the proposed dissertation. This consists of:
The utilization of statistical methods in testing samples
The makes use of a extraordinarily structured methodology as a means to enhance reproducibility of the outcomes
An exploration of relationships between difficult variables
Regarding the method acceptable for the dissertation, the exploratory evaluation methods have been considered useful given that it is the one used uncover phenomena which could be however to be studied or to extra uncover areas which have acquired few investigations as is the proposed dissertation. As well-known by Silverman (1993), exploratory evaluation seeks to know a particular phenomenon along with to appreciate new insights and views on the phenomenon beneath investigation. Saunders et al (2003) phrase a bonus of exploratory evaluation as being its flexibility and adaptableness permitting the researcher to easily deal with any route that the data would possibly dictate within the midst of gathering the data.
Data Assortment
Given the complexity of essential data assortment harking back to entry to the needed respondents, belongings and time which the evaluation lacks altogether, it will likely be not doable to utilize essential data assortment because the precept provide of data gathering for the proposed dissertation. Due to this fact, secondary data shall be utilized in a technique that may allow the researcher to analyse the UAE precise property market and the impression of the catastrophe. Secondary data shall be primarily collected from the Newspapers and UAE authorities such as a result of the Dubai World and the Abu Dhabi Funding authority. The selection of data gathering may be employed because of the nation lacks an organised data gathering system with anyone distinctive database referring to the property market unidentifiable (See: Ameinfo.com November 24, 2009).
With regard to data, the true property market may be examined particularly and about 20 precise property initiatives shall be critically analysed. The analysis shall be based upon how the financial catastrophe affected the various precise property progress initiatives and the extent of the impression. The dissertation shall be a longitudinal look at and might take care of the catastrophe interval between 2007 and 2010 when the heat of the catastrophe have been most excessive.
ActivitiesJulyAugSepOct NovDec
Start the thesis+++++
Full Chapters 1 & 2+++++
Data assortment begins +++++
Start with Methodology +++++
Begin to analyse data +++++
Look at analysis for consistency +++++
Get supervisor’s approval +++++
Start with the final word chapter +++++
Get the dissertation edited and checked+++++
Get supervisor’s remaining approval+++++
Applicable errors+++++
TIMESCALE: GANTT CHART
References
Albayan, M. (2009). The World Financial Catastrophe and the GCC space, Evaluation Sequence
Ameinfo.com (November 24 – 2009). Lack of know-how hampers Dubai property market forecasts, On the market at: http://www.ameinfo.com/217619.html
Bob, I. (September 24, 2008). “(quoting Joshua Rosner as stating “It’s not a liquidity disadvantage, it’s a valuation disadvantage”. Bloomberg, Retrieved June 6, 2012
Govt Journal (Jun 11, 2012). UAE – Constructing hits the wall, On the market at: http://www.executive-magazine.com/getarticle.php?article=11520, Accessed: 13th June, 2012.
World Monetary Evaluation (March, 2012). World Precise Property Tendencies, obtainable at: http://www.gbm.scotiabank.com/English/bns_econ/retrends.pdf
Hussey, J. and Hussey, R. (1997) Enterprise Evaluation: A Smart Info for Undergraduate and Postgraduate School college students, Basingstoke: Macmillan Enterprise.
Silverman D (1993). Deciphering Qualitative Data: Methods for Analyzing Talks, Textual content material and Interaction, London: Sage.
Saunders M, Lewis P and Thornhill A (2003). Evaluation Methods for Enterprise Analysis, 4th edn, Harlow: Pearson Coaching
Kuwait Finance House (2011). UAE Precise Property Sector Evaluation: KFH Evaluation Ltd. On the market at: http://www.liquidityhouse.com/add/UAE_Real_Estate_-_12_Sep_08_1443.pdf
Kamco Evaluation (2010). United Arab Emirates (UAE) Monetary Transient and Outlook, http://www.menafn.com/updates/research_center/UAE/Monetary/kamco130411.pdf.
TIME Journal Friday, (April 10, 2009). The financial catastrophe and the Dubai actuality.
Whatley, S. (2011). The Have an effect on of the Financial Catastrophe on Dubai’s Property Market, obtainable at:http://www.trcb.com/real-estate/real-estate/the-impact-of-the-financial-crisis-on-dubais-property-market-22671.htm
Wam, N. (Aug 2, 2011). Why a Weaker Buck Would possibly Help the U.S, Time. Retrieved , June ninth, 2012.

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