Iran's threat to close the Strait of Hormuz would lead to a drop in investor confidence and real estate values say analysts at Jones Lang Lasalle.
The UAE's realty market has so far benefited from its safe haven status following the Arab Spring. As a result, investor interest has increased over 2011, especially among investors from the GCC with the high-end property sector cited as the main beneficiary.
However, this perception would change if Iran decides to go ahead and close the Strait of Hormuz.
"Dubai and Abu Dhabi have so far benefited from being relative save havens away from the turmoil across the Middle East. The turmoil in Iran is much closer to home. My guess [if Iran was to close the Strait of Hormuz] the biggest impact would be on investor confidence," said Craig Plumb, head of research at Jones Lang Lasalle, Mena region.
In reaction to the EU threat of a possible oil embargo on Iran, the country has threatened to close access to the Strait of Hormuz.
The waterway is used for a third of the world's seaborne oil trade where more than 15 million barrels of oil pass through daily according to the US Energy Information Agency.
The closure would have a strong impact on major oil exporting countries such as the UAE which sits at the northern entrance of the strait.
"Any talk on waterways and especially the Strait of Hormuz has an effect on us. We will do everything possible to defuse the crisis," said Shaikh Abdullah Bin Zayed Al Nahyan, UAE Foreign Minister, at a recent conference.
According to Fadi Moussalli, regional director of International Capital Group at Jones Lange Lasalle, the news would also have a direct impact on real estate prices and on the growth of the market. "It's very hard to give a number on real estate prices but they would be negative, as the UAE loses its status as a safe haven," said Moussalli.
"However you need to remember, we are 60 per cent down from the highs of 2008 so while the Iran crisis would have a negative impact on property prices, we don't see any major drop backs from the falls we've had in 2009 and 2010," he added.
While the outcome would be a loss in investor confidence, there is also a positive side. "In the case of a major political crisis with Iran, the impact on real estate prices will be negative. On the other hand, oil prices will shoot up as a result those tensions which in a way would benefit the UAE which is a major oil exporting market. So we would have a push and pull factor," he said.
Realty on maturity path
The UAE realty market is set to continue on its path to maturity says Jones Lang Lassalle's latest report. According to Jones Lang Lasalle's "Top Trends for UAE Real Estate in 2012" report, the property industry is set to evolve into a more mature and stable marketplace with a focus on valuations and property and asset management.
The quality of estate management will be one of the factors determining the winners and losers divide among property development and will result in rent and price increases in some locations and stable or depressed prices in other places. This varied performance will apply between buildings of the same project and also between different units within the same buildings.
"The year 2012 year is going to be about asset specific performance. The main trend in the residential section will be around service charges. This is one thing which will differentiate between the winners and losers in 2012. Infrastructure surround the property will also be important," said Craig Plumb, head of research at Jones Lang Lasalle Mena region.
Encouraging this focus on customers requirement and long term commercial viability is the position of the market as a tenants market. Flight to quality will continue in 2012 leading to an emphasis on better quality projects across all sectors. "There will be more choice for occupiers and tenants in 2012. With significant levels of supply inflow in many sectors, the market is expected to increase in competitiveness which will lead to a wider spectrum of choices for tenants and occupiers this year," the report said.
Increasing realism among Abu Dhabi landlords will result in more leasing incentives offered to tenants. "The office market will become more tenant favourable. There will be a general trend towards lower prices and rents. The price the owner is asking for will stay the same. The tenants will be able to negotiate the headlining deal. The main form of that incentive will be in the form of rent free period," said Plumb.