Significant drop in the global oil prices has become a ‘talk of the town’ these days. Countries in different parts of the world are thriving under the fear of getting their economy hurt by the harsh blows of it. Industry experts believe that the economy will have a slightly negative impact owing to the not-so-good looking oil prices. The world is undergoing a major energy crunch and is believed to be dependent on oil producing countries for the same; Middle East being one of the main suppliers. Energy sector affects the commercial real estate market in a huge way. The experts say that leasing and construction demand will be hurt in some of the best performing markets for the commercial real estate market.
It is very unusual fact that the energy sector and specifically the oil prices can lay a very serious impact on the real estate market on a global level. Here are some of the lesser known yet important impacts that are likely to be seen or are already being felt on the real estate market:
- Vulnerable Countries Facing Challenges
The plunged oil prices have affected the countries with energy-dependent economies, such as the Middle East. The constituting nations in the Gulf get its major revenues from the energy sector and droop in the prices of the same can actually hamper the economy here. A major negative factor over the recent months has been concerns about the impact of lower oil prices on the UAE’s economy and, therefore, the real estate market. The only city that will be able to cope up with the situation is Dubai, which is diversifying its economy lately. The growth of non-oil sectors makes the city less vulnerable to lower oil revenues than other GCC oil exporters.
- Drooped Growth in Home Prices
Part of the world like Canada and Houston in the United States of America are likely to get affected by the same. These cities are more likely to get affected and mostly in their housing segment of the real estate market. The energy sector is expecting harsh blows already and thus they are doing lay-offs, decreasing the frequency of hiring and cutting back on programs. This may stem the migration activity and will make people to slow down their home purchase plans. Moreover, the job cuts will also affect the investment made in this very segment.
- Decrease in Home Sales & Starts
The story is just not about the Middle East but is also related to the rest of the world where the economy is supported by the energy sector to some extent. The realtors are gradually realizing that lay-offs and sluggish employee appraisals will dampen the home buying plans and this way the sale figures will definitely go down. This will not only affect the sales but will also affect the Home Starts figures as the builders will not be interested in undertaking new construction work. They will more be interested in clearing the backlogs.
- Bashed Economic Confidence
The fall in the oil prices is reflecting the weak global demand and thus, the countries that are backed up by the energy sector are likely to show up a weak fiscal confidence. This may repel the foreign investors from entering into these nations and supporting the residential space. Moreover, the multi-national firms are also dropping the idea of setting up their branches in these countries fearing that their weak companies may mar their growth. This bashes the employment market on a global level, as well.
- A Positive Peep Though
People around the world or the general mass may have a really nice time while economies are battling the plunged prices. The general public, initially disturbed with the oil prices can actually have a nice time now. They can spend the money with both hands that was initially saved and spent meticulously over cost of living and mainly the fuel. However, load shed from one end is likely to pile up somewhere else, which is on general goods and services adding up to the GDP. For now, consumers who are earning discretionary income can think about investing to some extent in their real estate market.
Experts clearly indicate that the relationship between the oil prices and the realty market is not satisfactorily aligned. People may enjoy the fall in prices but those who are a part of the Middle East or Europe have to actually now worry a little about their employment health as well.
All the Best!
Vineeta Tiwari is a keen writer on Global Economy and Realty market. She has written articles on Global realty market and ongoing trends and tips for investors. An ardent reader, she is happy to pen down research based write-ups for global audience. Currently, she is professionally associated with popular realty portal, 99acres.com.