Key insights
- Capital Economics warns that the Iran war is negatively impacting Dubai's economy, with tourism and expatriate flows declining. This threatens Dubai's real estate boom, which is also facing pressure from a surge in new supply. A real estate downturn could impact government-related entities, although the risk of a debt crisis is currently considered low. The impact on US equities is slightly negative due to potential global economic ripple effects.
Investing.com - Dubai’s economy has suffered heavily since the Iran war began, with tourist arrivals collapsing and hotel occupancy rates falling to around 20% from typical levels of 70-80%, according to Capital Economics.
The research firm notes that tracked flights from Dubai International Airport have averaged 200 per day since the conflict started, around one-third of pre-war levels.
The war poses a longer-term threat to Dubai’s appeal to expatriate workers and firms seeking to establish operations in the region. Dubai’s population has risen by more than a third since the pandemic began, and international tourist numbers were around 17% higher than pre-pandemic levels. That growth supported a real estate boom, with local property prices nearly doubling over the same period.
A slowdown in expatriate and tourist flows could deflate the real estate market, which faces additional pressure from substantial new supply coming online. Around 13,000 hotel rooms, representing an 8% increase in current capacity, and approximately 350,000 new homes, a 55% rise in the city’s housing stock, are due for completion over the rest of the decade, according to Knight Frank.
A real estate downturn would threaten Dubai’s government-related entities, which own, develop and manage large portions of property in the emirate. These state-owned or government-backed institutions were at the center of Dubai’s 2009 debt crisis after borrowing heavily to finance projects.
Capital Economics notes that the GREs have paid down debts in recent years. The firm says the risk that severe debt problems emerge remains low for now.
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