(DUBAI, UNITED ARAB EMIRATES) — Property in the Emirates is known to be expensive. After all, the city is built on the concept of luxury as a protection against its decreasing amount of oil reserves. Gulf leaders know that their land is mostly harsh desert and want to make it as beautiful as possible to ensure business and movement comes to their country.
But while the Emirates has encouraged people to come by offering free tourist visas to tourists under the age of 18, as long as they are accompanied by their families this summer, S&P Global Ratings has predicted a ten percent drop in property prices.
The Low Points
An oil-based economy
The emirates is still extremely reliant to its oil and natural gas reserves, as it takes up more than a quarter of the nation’s GDP.
And not only that, but the country is running on debt. During the 2007-2009 recession Abu Dhabi, the country’s capital, gave Dubai a ten billion dollar loan. Abu Dhabi has since lengthened the loan’s expiration date for another ten years and has given Dubai another 10 billion.
According to Forbes, the country has made no effort to combat the softening of oil prices and the real estate overbuilding problem. The population of the emirates is at about nine and a half million, and about 40 percent of office space is empty. Residential occupancy is only slightly less.
But there are positives, even if meager. The population of the Emirates continues to increase, with 90% of the population already expatriates. And due to the rise of unoccupied residential and office spaces, competitive pricing and off-plan sales are helping investors and tenants reap the benefits.
The city is the third most traveled country in the Middle East, with Turkey in first place and Saudi Arabia in second. And although the economy is still reliant on petroleum, the Emirates is working hard to diversify its economy.
Currently, the Emirates is slashing its government fees up to 50 percent to boost the economy, in an effort to ease the cost of doing business in this luxury capital.
The cabinet issued a decision to cancel or reduce certain charges by up to 50 percent on about 1,500 federal services for three ministries starting on July 1, according to a statement by the Ministry of Finance on Thursday. The measure was implemented following a study of fees compared to international best practices, according to The National.
BusinessInsider just last year ranked the UAE as the second-best place for real estate investment, reporting that monthly rent is $3,070 and the rental yield is 5.19 percent.
Can the Emirates be trusted to be a fruitful real estate investment and defy the odds? Buffett thinks so, but will others follow suit?
Buffett is not only expanding his real estate firm, Berkshire Hathaway HomeServices, to Dubai but to Asian and European major cities across the world, like Tokyo, Milan, and Vienna. The enterprise is to ensure that his luxury real estate firms are international and are top competitors.