I think that the financial crisis in the US affected the global property market. The Fed cut the interest rates to encourage people to take loans and refresh the economy in order to get rid of the recession. Since the UAE dirham is linked to US dollar the UAE follows the same monetary polices so it also cut its interest rate. However, the UAE did not benefit from this policy because it will increase the inflation rate in the country.
Inflation has increased the cost of construction and property unit in Dubai because the inflation rate is 11.1% now and it is expected to reach 12% at the end of this year. Also, it increased the fees that the owners of property units have to pay to the government. This made the owners of properties prefer to resell their properties at premiums of 10% to 15% of the original purchase price or even without premiums in many cases.
As we know many foreigner investors and people took their money from bank after the US crisis which affects the liquidity in banks and lead to the fund shortage in many banks in UAE. As a result, banks don’t have enough money to lend it to the investors and this led also to a decline in the demand of property because the investors do not have the money to buy. For example, many people who used to take loans to buy properties for trading will not be able to do that and might not be able to repay the loan which will lead to the same problem that happened in the US.
According to the article, HSBC bank will now lend up to 70% instead of 85% to make sure that the customers can repay at time. The tighten credits will affect the property market because nobody will have the desire to buy property because they can’t take loans as before. This all could explain why Dubai property prices rose 16% in the second quarter which is slower than the 42% price rise in the first quarter.