Are investors oblivious to risk in the Dubai real estate market?

As we headed towards an unexpected worldwide financial meltdown in 2007/8 it seemed that the Dubai real estate market was defying gravity. Traditional valuation methods were thrown out of the window, the government lost control of the market and the banking community was lending on crazy multiples. Despite the doom and gloom of the financial press the market kept pushing ahead, overseas money continued to pour in and demand still continued to grow for rental properties. So, are investors still oblivious to risk in the Dubai real estate market?

Did we learn anything from 2008?

If we look back towards the worldwide financial crisis of 2007/8 we saw the US mortgage crisis, worldwide liquidity drying up and investors repatriating their money to cover losses at home. The Dubai real estate market at the time was riding on the crest of a wave, valuations were astronomical and despite the doom and gloom it seemed that investors could not get enough. Even in the midst of the worldwide financial crisis, with the US economy (the engine room of the worldwide economy) collapsing, there was still talk that Dubai was something of a “safe haven”.

However, when the first dominoes began to topple it very quickly became clear that many companies and individuals had overextended themselves and the economy was slowing. This reduced demand for real estate in Dubai, an emerging financial crisis in the banking industry and the sudden realisation from investors that Dubai could not defy gravity forever soon hit home. There was a rush for the exit door and we saw prices tumble, the government scrambling to steady the market and some of the best-known companies in the worldwide real estate market falling on their swords. So, initially nothing was learned from the worldwide financial meltdown.

Quote from PropertyForum.com: “If there is one real estate market around the world which continues to be in the news it has to be Dubai. If it is not good news then it is bad news and there seems to be nothing in between when looking at this enormous and ever more popular real estate hotspot.”

Is the situation any different today?

Slowly but surely the Dubai real estate market began to claw back lost ground after 2008, the government introduced an array of regulations to safeguard investors and perhaps more importantly, confidence began to seep back into the market. There are still issues which need to be addressed, there are still mismanagement claims going through the courts but it seems as though investors are perhaps more trusting of the Dubai real estate environment than they ever have been.

As we covered in an article just a couple of days ago, for the last few months we have seen doom and gloom headlines surrounding the Dubai property market but no real impact on prices. Thankfully, there are signs of this is changing and perhaps investors in Dubai are now realising the risk reward ratio in this particular market is no different to that in others around the world. Demand is slowing, Dubai real estate prices are not rising as quickly as they have been and perhaps more importantly, the aspirations of buyers and sellers are now very different to what they were in the past.

Conclusion

Just a few weeks ago it seemed as though the Dubai real estate market was headed for yet another troubled period within investors seemingly ignoring the tell-tale warning signs. However, over the last few weeks we have seen buyers wanting more for their money, sellers now considering a softening of their hard stance on selling prices and a reduction in overall demand for Dubai real estate.

Thankfully, it does seem as though investors in Dubai are beginning to appreciate the risks and the fact that Dubai is no different to any of the other major real estate markets around the world. Whether this will continue into the future remains to be seen…………