Nicholas Wallwork
Editor-in-Chief
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IMF concerned about Dubai property crash
Over the last few months we have seen many experts step forward to suggest that the Dubai property market is running out of control, overvalued and could potentially fall in the short to medium term. During this period investors continued to pour enormous amounts of money into the Dubai real estate market although this week the International Monetary Fund (IMF) stepped forward to suggest that Dubai officials need to do more to avert a crash
These are the kind of voices which investors should take notice of because the IMF does not issue such downbeat and potentially harmful statements without due consideration. These are the type of statements which can cause confusion and mayhem in the markets but will investors be listening and are they taking notice?
Flipping properties
If there is one element of a buoyant real estate market which comes to the fore time and time again it has to be the flipping of properties. This is effectively short-term investment in real estate assets with the intention of selling on for a significant profit and walking away. Over the last 12 months we have seen a troubling rise in the number of properties being flipped which illustrates there is excessive demand and limited supply.
Quote from PropertyForum.com : “The Dubai real estate market has been on something of a rollercoaster since the turn of the century. How you see the market performing in the short, medium and long-term and what will be the major influences?”
Real estate transactions in Dubai
One figure which stands out head and shoulders above the rest is the fact that the value of real estate transactions in Dubai increased by 53% in 2013 compared to 2012. We saw an amazing $64.3 billion worth of real estate change hands in 2013 and many experts are predicting more of the same.
The Dubai authorities were represented at the IMF meeting although unfortunately they were unable or unwilling to give a statement after the announcement. While it would be wrong to suggest that the Dubai economy is in trouble, with growth expectations of around 5% for 2014, the ever-growing increase in the cost of real estate assets cannot continue for ever and a day. It is also interesting to note that real estate prices have already risen by 30% during the first three months of 2014.
Do investors never learn?
While the 2008 real estate crash cast a dark shadow over Dubai for a couple of years, there is no doubt that the market and investors have come back fighting. The situation is different to 2008, there are more controls in place and the economy has much firmer foundations than that back in 2008. However, the IMF believes that the Dubai authorities need to introduce strict financial controls in the short to medium term and look towards the regulatory model used in Singapore and Hong Kong to dampen investment in their real estate markets.
At some point investors will begin to take a profit on their Dubai assets, what begins as a trickle could very soon turn into a strong wave and this is something which the authorities need to avoid at all costs. While boom and bust is a necessary part of any investment market, it is vital that the highs and lows are controlled as much as possible in order to avoid investors being wiped out.
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