The real estate market in Dubai, UAE, is likely to trend upwards this year and enter the recovery phase of its third cycle, thanks to the government's expansive fiscal policy, said a report.

As oil prices and equity markets continue to fall further, the consensus on the current situation of being a redux of 2008 becomes stronger. However, a closer examination of the 2016 budget reveals a mismatch, according to Unitas Consultancy, a Dubai based real estate consulting firm.

In response to the oil price crash over the last 18 months, majority of GCC members have slashed their 2016 budget spend by more than seven per cent. Interestingly, Dubai has increased its budget by 12 per cent year over year, said the Dubai consulting firm in the report released by Reidin, a leading real estate information company focusing on emerging markets.

This highlights the government's role in expanding the money supply in order to encourage economic growth, stated the report.

It is this response by the government that is providing the fillip in the form of sustained fiscal stimulus in the face of global economic headwinds, and as economic history suggests, sustain
and mitigate the impact of any downturn, it added.

According to experts, the relationship between the budget spend and real estate prices is intertwined, where the former is a leading indicator of the latter.

For example this relationship is witnessed in Dubai and Qatar over the last 6-8 years, where an increase is budget spending has coincided with an increase in real-estate asset prices with a lag, they pointed out.

As oil continues to float near the $30 range, concerns abound that the contractionary effect will lead to a reduction in economic activity, they added.

According to them, Dubai is the only exception within the GCC states that has a low dependency on oil (six per cent in 2016), as the emirate has diversified into other sectors such as tourism, retail, and logistics.

It is this diversification of revenues that has allowed the city to adopt an expansionary fiscal policy, they added.

"If both the government and private sector spending continues to increase Dubai will cope with the falling oil prices, supplementing the loss of jobs from the oil and gas sector with other booming industries such as tourism, construction, and healthcare," the experts stated.

Last year Dubai experienced a 5.1 per cent increase in population coupled with 3.4 per cent in GDP growth, said the Unitas report.

"The expansive fiscal policy adopted by the government is inline with the current infrastructure boom that is underway. If the momentum continues, Dubai real estate prices will begin to trend upwards, entering the recovery phase of its third cycle," it stated.

According to the report, even though foreign money flows will likely be impacted in the face of declining oil prices, the stimulus adopted by the government will cushion any deleterious impact.

This fiscal stance is expected to be sustained during the run up to the World Expo 2020, said the report.

Although it is likely that foreign inflows will subside in response to falling oil prices, the impact will likely be moderated as the city moves to recalibrate the housing market towards a more affordable option, it added.-TradeArabia News Service