The UAE is benefiting from “a broadly favorable global environment” according to the IMF.
The price of oil has expanded the Government’s hydrocarbon revenue by 37% in 2010, with an IMF projection of 53% growth in 2011.
The UAE is also benefiting from increased activity in other areas. Real GDP from nonhydrocarbon sectors grew 2.1% in 2010 compared to 0.6% in 2009, with a projected increase of 3.3% in 2011. Prices are expected to rise to 4.5% in 2011, up from 0.9% in 2010, a subdued growth reflecting the country’s continued deflation of real estate assets.
The IMF also confirms that the UAE has remained relatively immune to contagion from recent political unrest in the region. The IMF went further to say that the UAE may actually gain from the current turmoil through increased tourism, as well as from companies relocating to the UAE’s favorable business environment, which now boasts affordable real estate with relatively good infrastructure.
Fears of a double-dip recession seem to have subsided, but some downside risks remain. Dubai’s real estate surplus is approximately 30% or higher, with spillover effects continuing in the near future with the completion of projects launched pre-crisis. Also, on-going debt issues related to Dubai’s Government-Related Entities, namely Dubai World, Dubai Holding, Dubai Group, and Dubai International Capital, continues to cast a shadow over the market. However, the IMF has reported that UAE banks remained profitable throughout 2009. Abu Dhabi has also taken steps to allay fears by increasing Government spending and available credit from banks.
Given current global hardships, Dubai’s hotels have sustained remarkably consistent performance. According to Dubai Tourism and Commerce Marketing (DTCM), occupancy from 2009 to 2010 has remained steady at 70%. Current indicators based on performance in Q1 2011 show that the sector may outperform the previous two years, given the year-to-date increases over Q1 2010. Dubai’s success seems to lie mainly in its affordability: by keeping rates down, hotels not only manage to maintain occupancy but increase the average length of stay per guest-visitor.
On the back of these tourism figures, Dubai Properties has projected a year-end revision of its masterplan, Dubailand, which includes theme park facilities such Dubai Universal Studios and Dubai Legoland. Shelved during the real estate crash, these theme park developments, which are currently lacking in the region, could further cement Dubai’s place as the premier travel destination in the Middle East. It could also signal favorable news down the line for stunted residential villa projects surrounding the attraction areas.
Despite short to medium-term recovery risks, optimistic sentiment about local market conditions continues to increase. The flexibility and consistent performance in Dubai’s hospitality industry and other sectors has helped to reduce economists’ fears of a double-dip recession in the UAE.