UAE property investors – time to take advantage of the currency situation

In the last few months we have seen notable fluctuations in a few major currencies. With further fluctuations likely, Sarah Duthie from IFX Payments and Brendan Kennelly, Senior Mortgage Consultant at Mortgage Finder, take us through the changes and the potential opportunity that these fluctuations create for those who own property in the UAE.

Current situation

The US Dollar (USD) currently remains strong and has been trading within a tight range, and as the Dirham (AED) is pegged to the US Dollar, this makes it a favourable time for those currently selling Dirhams and buying the majority of currencies, specifically the Pound Sterling (GBP) and Euro. As the UK and Europe are suffering a 2-year low against the USD/AED now is an excellent time to buy both the Pound and the Euro.

The sentiment around this has been unrest and poor economic data in Europe, coupled with the ongoing Brexit negotiations in the UK over recent years, which has caused uncertainty in the markets. All of this and the current possibility of the UK leaving Europe without a deal are weighing heavily on Sterling. We have witnessed quite a volatile market on the back of Brexit jitters.

Reasons for the recent trend

GBP saw a sharp drop in July after the new UK Prime Minister, Boris Johnson, declared that the UK would leave the EU with or without a deal in October. Although the EU are looking likely to open up negotiations regarding the Irish Backstop, political unrest in the UK and the UK Parliament now facing a shutdown mode is likely to create more volatility for the currency over the coming weeks.

The Euro has been affected recently with the economic slowdown of its strongest country, Germany. Unrest in France, along with the recent vote of no confidence and resignation of the Italian Prime Minister, are all pointing to a dim outlook for the European Union.

But what does all this mean for you if you own property in the UAE?

Case study – AED to GBP/Euro

Many clients are under the impression they are working at a loss on their Dubai property investment due to the price drop in recent years. However, depending on how you generated the funds to purchase the property, you may be surprised that when the currency exchange is taken into consideration, there may still be profit within the property investment.

In the example below, using actual currency exchange rates for both GBP and Euro (correct as at the time of writing) you can see how much currency would have been required in order to purchase a property in 2013 for AED4.3M. Even if that same property has devalued over the last six years by as much as AED700,000 to AED3.6M (taken from an actual property market value), an AED sell back today would achieve a significant profit from the sale – a profit of GBP31,956.

Buy/Sell Price (AED) Date Sell/Buy Currency IFX Rate – AED/GBP Amount in GBP
4,300,000 Aug-13 Sell GBP/Buy AED 5.5862 769,754
3,600,000 Aug-19 Sell AED/Buy GBP 4.4904 801,710

The opportunity

For those of you who already own property in the UAE and are considering expanding your property portfolio abroad then UK and European markets do present an opportunity at this time. It is worth noting that if you are purchasing for investment purposes only, then the rental yields in many major cities in the UK and Europe will struggle to rival those of Dubai, which still sits around 5-9%. However, with the uncertainty causing the value of the Euro and GBP to fall against the USD, and therefore the Dirham, your money could go further on UK/European investments made at this time.

If this is something you are considering, but having funds locked in property in the UAE, then equity release is a good option for you. Equity release is borrowing against the value of your existing property. So, if you have purchased any property in the UAE and now own outright, or have sufficient equity in the property (i.e. a relatively low mortgage in comparison to the property value), then there is an opportunity to take cash out or top up your existing mortgage in Dirhams. You can then transfer these funds to GBP and/or Euros whilst it’s a good time to do so. We can arrange mortgages for both residents and non residents on this basis, the cash can then be used for other investments or however else you wish.

It is possible to release up to 75% of your property value as an expat with an equity release mortgage in the UAE.

Short-term forecast

At this stage, it is difficult to predict where things might go later down the line, but we can consider the short-term possibilities:

US – ongoing trade talks with China, geopolitical tension, the possibility of a further interest rate cut in September and talk of recession could result in a lack of confidence in the US Dollar and we therefore may see the Dollar slightly weaken.

GBP – possible uplift in Pound strength if there are any indications of a deal to leave the EU being brokered. However, political confidence, party challenges and parliament standing firm on a no deal scenario could lead GBP further into a downward trend leading up to the 31 October deadline. Overall, we expect Sterling to remain on the back foot for the next couple of months.

Euro – The Euro eased to a 2-year low coming into September. It has been hit, recently, by sa slow eurozone economy and likely more easing from the European Central Bank in September. The possibility or brokering a deal with the UK may provide some confidence but with poor growth prospects throughout the European Union, however forecasts hint towards further weakness to come.

The short-term outlook for the GBP and Euro is clearly uncertain, however if you are interested in taking advantage of the current situation then now is the time to do so. The key focus at this time is to first act fast in developing a full understanding of your options and then making the right decisions to best suit your circumstances.

By Sarah Duthie, Account Manager at IFX Payments and Brendan Kennelly, Senior Mortgage Consultant at Mortgage Finder