Lower Oil Prices: How Exposed Is Dubai?

Oil prices have fallen sharply over the past six months, raising concerns across the Gulf. For Dubai, the direct impact is smaller than for many neighbours, because oil accounts for only a small share of the emirate's economy. However, the indirect effects, through regional wealth, government spending and investor sentiment, deserve attention.

Why Dubai is less exposed

• Diversified economy: trade, tourism, aviation, logistics, finance and real estate.
• Hub role: serving businesses and visitors from many countries.
• Private sector: a large share of activity is non-government.

Indirect effects

Lower oil revenues may reduce spending by neighbouring governments and the wealth of regional investors, some of whom are important buyers in Dubai. Sentiment across the Gulf can also weigh on decisions.

Effects on property

We expect demand from some regional buyers to soften and the market to remain cautious after the cooling measures of 2014. Prices may move sideways or ease in some segments.

Potential positives

Lower oil prices reduce costs for airlines and logistics, sectors central to Dubai. Dubai's stability may also attract capital from countries more affected by the fall.

What investors should do

Investors should avoid overreacting, focus on income-producing properties and keep borrowing at sensible levels.

Which segments feel it first

If lower oil prices weigh on the region, the effects are likely to appear first in segments that depend on regional wealth and investor sentiment. Prime villas and luxury apartments bought by buyers from oil-exporting countries may see fewer transactions. Off-plan launches aimed at investors could also slow. Segments driven by residents' housing needs, such as mid-market rentals and family homes in established communities, tend to be steadier, because people still need somewhere to live. Commercial property may be affected if companies delay expansion. Investors with diversified portfolios across segments are better protected than those concentrated in a single type of property or buyer group.

Our view

Dubai is better placed than many to weather lower oil prices, but it is not immune. We expect a period of moderation and see it as an opportunity for patient, selective buyers.