The last few days have seen the emergence of a “plan of attack” by the Dubai authorities in relation to the difficult property markets in the region. It has been confirmed that the authorities in the region are currently undergoing a detailed fact-finding mission to see how the supply and demand balance is holding up in the market. While specific comments at moment suggest this is only happening in Dubai there is a feeling that it will soon spread throughout the whole of the United Arab Emirates.
Many are concerned that the property market in the region is more susceptible to the influence of the local authorities than many other markets around the world. Is it correct to influence markets so heavily or is this a safety mechanism to ensure the markets remain orderly?
Investing in the United Arab Emirates
Those who have ever looked at investing in the region will probably be well aware that the government influence over many markets is very strong. The recent announcement that authorities in the region are reviewing the supply and demand in the property sector should come as no surprise when considering this against the recent move to reduce financing in the area as the worldwide credit crunch finally started to hit the United Arab Emirates.
The property market
The last few months have seen the Dubai property market in particular stall somewhat as the reality of the worldwide economic slowdown hits home. Initially there had been hopes that the market would avoid the worst of the downturn, which it may well, but a number of safety nets have been installed to ensure the potential downturn is not as dramatic as many seen around the world.
When you consider that the United Arab Emirates property market has literally grown from nothing to a world leader in just a couple of years the growth has been nothing short of phenomenal. One problem of late seem to be the fact that many people were adamant that the rise would go on and on until at least 2010. This kind of over exuberance is a major issue for any authority and the Dubai authorities in particular have been very quick to stamp out talk that the property market will continue to grow at rates seen over the last two years
Foreign investment
While many foreign investors to the region will feel slightly hard done by with regard to the recent scaling down of finance, in reality this had to stop at some stage because figures released by the Dubai authorities show an increase in net debt to $90 billion which has been run up over the last few years. That is not to say that the authorities will have any problem financing debt, but it does require them to take control of the situation to protect the future of the region.
Foreign investment has been the food for the rise in the property markets of the United Arab Emirates and an ability to reduce the intake of this “food” is vital. Those who believe the area will struggle in the medium to longer term need look no further than the tourism market which has mushroomed of late. When you put the tourism market and the business market together there is sure to be great demand for property in the United Arab Emirates for many years to come.
It is also worth considering that the vast majority of property in the region is under the control of two or three government owned or heavily government influenced property companies who are unlikely to do anything to rock the boat at this difficult time.
Government influence
Many foreign investors are not used to the massive influence which local governments have in the United Arab Emirates and as such there may be some retaliation in due course. International investors will need confidence in the authorities and assurances that while we are experiencing a “once-in-a-lifetime” situation at the moment they will not intervene in the market on a regular basis.
There has already been a softening of the government’s approach as the requirement to attract more and more overseas investment, overseas visitors and overseas businesses moves higher up the pecking order. This balance will level itself out in due course although there may be some friction if the government is seen to be influencing both the finance and the property markets too much.
Tourist market
The creation of a mass of tourist developments and tourist attractions in the region has certainly put Dubai in particular on the worldwide tourist list. However, other regions of the United Arab Emirates are also benefiting and while this market may slow in the short term the long-term position in the worldwide tourist market seems fairly assured.
While some property investors may complain about overregulation of the property market there have been no complaints about the billions of dollars which the government has pumped into the transport network with a new airport coming on stream and attracting visitors from all around the world. This increased presence in the international transport network is again vital to the success of the region in the medium to longer term.
Summary
While there will be many who complain about the government’s strong intervention into the property and financial markets of late in reality this has always been the case. Dubai in particular is one of the best stage managed properly markets around the world and those who play within the rules have done very well although those who take chances may well be at risk in the short term.
The authorities throughout the United Arab Emirates are keen to find a balance between supply and demand in many areas of investment and they have absolutely no fear in stepping into the breach as and when required. The increase in the debt of Dubai to around $90 billion is a concern although income to the region continues to grow and the debt is easily serviceable even if the region was to suffer a setback.
Dubai and the rest of the United Arab Emirates are not traditional property markets as we know in the Western world and any investors looking at the region need to do their home work beforehand.