Will the UAE real estate be affected by Brexit?

Industry experts weigh the pros and cons of Brexit and its immediate effect on the UAE’s real estate and construction sectors. Paromita Dey reports.

Britain has decided not to invoke Article 50 until the end of 2016, and the country still has two years to negotiate its withdrawal.
Britain has decided not to invoke Article 50 until the end of 2016, and the country still has two years to negotiate its withdrawal.

On 23 June this year, Britain took an historic decision – to leave the European Union (EU). Most Britons in England and Wales voted in favour of the United Kingdom (UK) leaving the EU for good, with the Leave campaign emerging victorious by virtue of an extremely slender majority of just 52.5% ‘Out’ votes.

The effect was almost immediate — the value of the pound crashed, the then Prime Minister David Cameron decided to step down, and frenzied global stock markets nosedived. Moreover, the economic outlook has been described by observers as bleak. Britain has decided not to invoke Article 50 till the end of 2016 and the country still has two years to negotiate its withdrawal from the EU.

The UAE’s business establishments and British expatriate residents, who have invested in the Emirates’ real estate sector, have been feeling the ripple effect of Brexit ever since, in apprehension. Being among the more open and investor-friendly real estate markets within the region (and the world), the UAE is more susceptible to global factors — as the year 2008 demonstrated. Among the diverse nationalities residing in Dubai, data from the Dubai Land Department (DLD) shows that British nationals form the third largest real estate investor group.

Craig Plumb, head of research at JLL MENA, says in the Dubai Real Estate Q2 2016 Overview report: “Even though it is too early to predict the long-term implications of Brexit, 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 EU.

“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,” Plumb says.

Decaln McNaughton from Chestertons MENA also agrees with the fact that the UAE real estate market is likely to face an immediate decline in UK investments following Brexit. The firm’s managing director was quoted by Zawya Projects, as saying: “In the short term, the weakening of the pound means it is more expensive for British investors to purchase property and, therefore, people may decide to hold off on investing.”

But he also added that the drop in the volume of investors from the UK is unlikely to affect the UAE property sales overall, due to significant interest from other countries in the region. “We don’t expect Brexit to have serious implications on the real estate industry in the UAE as the market remains buoyant with Middle East investors, particularly those with funds to purchase.”

Since time immemorial, London has been an iconic property investment destination for investors around the world, particularly those from the Middle East and especially the UAE. A huge chunk of overseas investments come from this region to the UK. Despite the fuzzy economic outlook under present circumstances, Faisal Durrani, head of research at Cluttons, pointed out a silver lining for those looking to invest in London.

“Those from the Gulf eyeing up a London residential asset will find it 31% cheaper than it was during the last market peak in Q3 2007, suggesting that we may be on the cusp of seeing a significant resumption in property investment activity in the British capital, particularly as global investors seek out safe haven assets such as gold and London’s bricks and mortar, which we expect will retain its appeal.

“The longer term implications are too early to assess, but we may start to see the unlocking of London’s stalled residential property market, with investors both exiting and entering the market as we head towards a period of demand volatility.”

The overnight deterioration in the sterling’s value has led to a massive fall in the average property price in London — the price of a prime Central London residential asset has plummeted by upto $96,000 (AED350,000) from what it was on 20 June, making it immensely cheaper and more attractive for international buyers, according to Durrani.

Looking further ahead, it seems inevitable that the UK and European economies will have to brace for a couple of years of uncertainty, as the British and European leadership seek to find the most viable way to end their marriage, yet allowing Britain the privilege of access to European markets.

Apart from real estate, will the UAE’s construction sector remain immune to the after-effects of Brexit? “No immediate impact,” says Daniel Xu, senior legal consultant at DLA Piper.

Xu told Construction Week that the Emirates’ construction sector is sufficiently diverse to weather any short-term effects that result from the UK’s decision to leave the EU. The DLA Piper expert also argued that the UAE will have time to guard itself against potentially damaging long-term consequences of Brexit.

“In the short term, nothing has changed and we think it will be business as usual for the UAE’s construction industry. Firstly, key players operating within the UAE construction industry that are based or headquartered in the UK are typically well established companies here with strong, proven track records. Secondly, there is sufficient diversity within the UAE construction industry in terms of key players, not just from the UK but also from the wider Middle East region and the Far East.”

Xu added that the two-year period, during which the UK will transition away from its current status as an EU member state, will allow the UAE’s construction sector to prepare for the divorce.

“It is important to remember that we are now only at the transition phase of Brexit. EU law will continue to apply in the UK throughout the exit negotiation process. Therefore, all existing EU laws and regulations will remain in full force and effect until the terms of the UK’s exit agreement have been concluded.”

Although property professionals have acknowledged the result of the UK’s referendum, only time will tell how Brexit will impact Britons residing in the UAE in reality.

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