A military conflict between Iran and Western powers would be detrimental to property prices in the United Arab Emirates as the country would lose its safe haven status, according to Jones Lang LaSalle Inc.

A confrontation will affect “confidence in the U.A.E. and the impact on real-estate prices would be certainly negative,” said Fadi Moussalli, regional director for Middle East and North Africa at Jones Lang LaSalle.

Tensions have risen in recent weeks with Iranian Vice President Reza Rahimi warning on Dec. 27 that his country, the second-biggest producer in the Organization of Petroleum Exporting Countries after Saudi Arabia, may close the Strait of Hormuz if Western nations block its crude oil sales.

Dubai, less than a hundred miles from the Iranian shores, witnessed the region’s worst property crash in the aftermath of the global credit crisis in 2008. Dubai home prices dropped more than 65 percent from their mid-2008 peak and the U.A.E.’s property prices may drop further as additional properties are completed. In Dubai, about 25,000 homes should reach completion this year followed by a similar number in 2013, Arqaam Capital analyst Mohammad Kamal estimated last month.

Last year, the U.A.E.’s property sector benefited from increased interest from Syrian, Iraqi and Egyptian investors who sought to invest in Dubai and Abu Dhabi as revolutions mired their economies, Alan Robertson, chief executive officer at Jones Lang LaSalle, told reporters.

No Safe Haven
“There has been confidence that Dubai and Abu Dhabi have stable government and are good places to park investment capital for a period,” Robertson said. “Military conflict would lose the country its safe-haven status.”

A military conflict may not push prices down by the same amount witnessed in the aftermath of global credit crisis because prices had already been lowered by 60 percent, said Moussalli. He declined to comment on the expected price declines in the event of crisis.

The impact on prices may be delayed and would take time as people put off property purchases, said Robertson. “The first noticeable impact would be a drop in activity levels as people lose confidence” he said. “It would be only after a certain period of inactivity that prices would start to adjust.”

Other cities in the region competing with Dubai for investors’ money such as Doha would not likely benefit in the case of a crisis with Iran, Moussalli said.

“This would be a regional crisis and it won’t be just the U.A.E. that would lose its safe haven status,” he added. “It would be the whole region.”

To contact the reporter on this story: Zainab Fattah in Dubai on [email protected]

To contact the editor responsible for this story: Andrew Blackman at [email protected]