With the price of gold soaring to around $2,000 an ounce and the number of tourists visiting the United Arab Emirates in a slump, jewelry shops in the Persian Gulf country are facing a crisis. They are also faced with the dilemma of what to do with the gold sitting in their safes.
According to media reports in the Gulf, the jewelers are inclined to take advantage of the high price of gold and sell off excess supply quickly to pay down their debts. By some estimates, jewelry sales have fallen by more than 30 percent in the past two months. Many stores have been forced to close, putting hundreds of people out of work.
The repercussions of such a blow go beyond the decline in commerce. Store closures affect rental rates at the shops that remain open. Owners renegotiate their leases, setting off a decline in rental rates at commercial property throughout the country. Opinion polls show that the public’s confidence that the situation will improve is at a record low among both consumers and merchants.
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“All we can do is wait for a vaccine for the coronavirus,” the owner of one jewelry store told an Emirati news outlet. “The number of coronavirus patients is not dropping. The tourists, who are the primary buyers of jewelry, are barely in evidence, and people are holding on to their money and not spending it on luxuries, even if they are wealthy.”
But the crisis atmosphere also offers opportunities to anyone seeking a long-term investment or looking to take advantage of the dip in property prices. Sales of apartments that are ready for occupancy have jumped more than 46 percent compared to last year, and banks are offering buyers lower interest rates and requiring down payments of just 15 percent of the purchase price instead of the usual 25 percent.
The real estate sector, which is the main engine of growth for the UAE economy after oil, is developing new niche markets in an effort to reinvent itself and attract buyers. If the old policy was “If you build it, they will come” – and they did – over the past year, the policy has shifted. Developers are wary to start building before they have sold a significant number of apartments.
The more cautious approach gives builders and their marketing teams increased flexibility to adapt their plans to suit the customers’ needs and above all to accommodate changes wrought by the global pandemic. Apartments are now being built with home offices or workspaces separated from living areas to facilitate working from home and with design elements aimed at reducing the risk of infection.
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Another trend in the UAE residential market is apartments for both local and foreign retirees. A law passed in September 2018 permitting long-term visas for foreigners over the age of 55 is expected to provide a shot in the arm to the local real estate market. According to the Dubai Statistics Center, in Dubai alone, which is the UAE’s major business hub, there are roughly 170,000 people in this age group, the vast majority of whom are foreign nationals.
“If only 10 percent of them meet one of the criteria for the visa, we are talking about 10,000 to 15,000 properties,” Haider Tuaima, the head of real estate research at the consulting and advisory group ValuStrat, told the Arabian business website.
One way to meet the criteria for the so-called retirement visa is to invest in a property worth at least two million UAE dirhams (around $550,000) and hold a valid resident visa. The program is set to open soon to nonresident expatriates, giving people living in northern Europe or the United States another warm-weather retirement option, in addition to Spain, the south of France, Florida or Costa Rica. The problem is that the UAE has a hot climate, with unbearable temperatures for a number of months of the year.
It will take some time before the world’s retirees can provide a significant revenue stream for the UAE, which has yet to find income sources that are not reliant on oil and its derivatives. That’s also true for all of the Persian Gulf states, which due to the coronavirus, have been hit hard by the dramatic dive not only in oil prices but also in services and manufacturing.
The simplest path towards increased cash flow is cutting government spending and increasing tax revenues. A new example of this approach is the policy announced by the leader of Oman, Sultan Haitham bin Tariq. He took power in January following the death of longtime ruler Sultan Qaboos bin Said, who ruled Oman for 50 years.
The comprehensive economic reform includes a dramatic cut in the number of government employees and the introduction of a 5 percent value added tax that is expected to bring in around $1 billion. The changes will only be introduced in January, and as usual, they will include a generous cushion to absorb the “shock” to Oman’s citizens. They have never paid VAT or any other kind of tax, thanks to the 55 percent average tax rate that foreign oil companies in Oman have paid. Bahrain and the UAE have each introduced their own 5 percent VAT charges, and this year Saudi Arabia tripled its tax rate to 15 percent.
The pandemic has helped the Persian Gulf states teach their citizens the necessity of taxes. Similar measures were introduced before the coronavirus crisis hit, but they were attributed to the oil crisis, which forced the countries’ governments to take responsibility for their oil-pricing policies. Now, when most of the Gulf states are sunk in debt, new taxes can be spun as yet another cost of the coronavirus, along with lockdowns, curfews and travel bans, rather than the result of government mismanagement.
What was taken for granted in poor Arab countries such as Egypt, Jordan and Morocco might now become an inseparable part of life for citizens of the Gulf states as well.