A federation of seven emirates, the UAE is home to the world’s third largest oil reserves, but is undergoing transition into a diversified economy. Tourism, transportation and financial and business services, alongside pharmaceuticals and technology, are important and growing sectors. Dubai, with comparatively smaller oil reserves, has been boldest in this transition and has reduced the portion of its GDP based on oil and gas output to 25%.

The UAE has also capitalised on its location as the mid-point between Europe and Asia, developing hub airports in Dubai and Abu Dhabi. Dubai International Airport is now the world’s busiest by international passenger traffic. The Dubai International Financial Centre, one of many free trade zones in the UAE, provides a platform for business and financial institutions to operate in the region.

Consequently, the UAE stands out as a ‘safe haven’ for both local and international investors in the Middle East, attracting businesses and capital from across the region and into the region.

Overall, the UAE’s economy has shown volatile growth over the last three decades, but the highs and lows have become less extreme in recent years. Following a sharp contraction of economic growth in 2009, when the economy shrank by 5.2%, economic growth is currently strong, having resumed in the region of 5% per annum since 2011.

Dubai

Dubai was opened up to foreign property ownership in 2006, although not all sectors of the city are available for foreign purchase. Fuelled by cheap credit and speculation, prices in the Emirate more than doubled by 2008, but were hit hard by the global financial crisis when debt dried up. Residential values fell by 60% between 2008 and 2011. Almost half of the construction projects in the UAE at the time were put on hold or cancelled.

After a few years of stagnation, 2013 saw recovery, bringing prices within 39% of their former highs. Lessons do appear to have been learned from the previous boom and bust. The government introduced cooling measures in the second half of 2013 in a bid to reduce speculation in property, including mortgage caps and a clampdown on ‘flipping’.

The first half of 2015 brought with it price falls of 7.7% and lower transaction volumes, amid a wave of new supply and a fall in speculative investment. Rental growth is slowing too, but occupier demand remains as the economy continues to strengthen.

Dubai is the most internationally invested city for residential real estate in the Middle East and much of Dubai’s success is down to its multi-layered appeal as a business and leisure destination for a range of European and Middle Eastern markets.

In spite of the slowdown, what makes Dubai’s long term prospects stronger than many other centres in the region is its reputation as a global centre of business. This has been underpinned by the city’s hosting of the World Expo in 2020.

Strides are being made in improving the city’s infrastructure in this car-reliant city. The Dubai tram opened in 2014, complete with air conditioned tram stations.

^{Source: Savills World Research}