United Arab Emirates: Sunday, July 08 - 2005
No UK Crash Heralds Dubai Boom
Despite dire predictions from many sections of the media, a crash in the UK housing market has failed to materialize. Instead, the gradual interest rate hikes introduced by the Bank of England's Monetary Policy Committee have slowed sales down, but not produced sufficient shock to cause a stampede. Good news for the Dubai market, then.
Britain's Monetary Policy Committee (MPC) has done a sterling job of slowing down the UK housing market without destroying it. The Committee has raised base rates (something that feeds straight into the cost of UK mortgages) methodically since mid-2003 – to their current level of 4.75 percent.
Rate increases have been used as a weapon in the bank's battle with overall inflationary pressure, rather than the more politically charged demand to reduce spiraling house prices for first time buyers. But the result has been the same. House price inflation has eased, and general inflation is still within the targets the MPC have set for itself.
As the British economy enjoys a soft landing, the committee seems less likely to want to increase rates further. If they did, they could be accused of scuttling the housing market completely, and smashing consumer confidence.
A couple of months ago, the Royal Bank of Scotland was predicting a further hike in rates on August 4 – the next date for an MPC meeting. Today, the bank is less sure, suggesting no change is as likely, as well as a possibly earlier reduction in rates next year.
This is great news. And not just for homeowners in Britain. It is our guess that the slowdown in business in the Dubai housing market between February and April was partly the result of British holiday home-buyers and would-be expatriates digesting increased mortgage costs at home.
Britons are one of the largest buyers of freehold Dubai property. A recent survey of young Brits revealed that almost three-quarters (72.2%) are considering moving abroad at some point, with over one in 10 (12.3%) thinking of making the move within the next five years. What happens in the UK is very likely to affect us here, and not just in the long term.
UK house prices are still steadily rising. The house price index released last week by the Office for the Deputy Prime Minister showed a second increase in annual inflation – from 10.5 percent in February to 12.6 percent in March. This means people thinking of moving or buying that dream second home are still in a position to either sell or release equity in order to buy in Dubai.
Add consistently high sterling exchange rates, and as long as the MPC gets its calculations right, there is even more reason to believe that the Dubai market has a healthy few years ahead of it.
