Amid concern that we could see a short-term slump in Dubai property prices and demand for rental accommodation there is a growing belief that the figures just do not stack up. This is a market which has experienced ups and downs like no other over the last 20 years but is still seen by many as a core real estate market in years to come. So, why do the recent concerns about demand for property in Dubai not stack up with the statistics?
Growing population
Did you know that the Dubai population is expected to grow from 2.4 million people to around 6 million by the year 2020? This phenomenal population growth will obviously lead to strong demand for new homes although not all of those moving to the region will be in a position to acquire real estate. A conservative estimate suggests that around 75,000 of this growth in population will be so-called white-collar workers and their families. Exactly the demographic that the Dubai real estate developers are targeting.
New builds in Dubai
At this moment in time newbuilds in Dubai are averaging between 10,000 and 15,000 per annum which would be nowhere near enough to satisfy future demand. Many thought that the newbuild situation in the UK was challenging but it pales into insignificance compared to the challenges ahead for the Dubai authorities!
As a consequence of this relatively low newbuild number and relatively high growth in population many are now expecting house prices to move significantly higher in the long term. While there is every chance that developers will increase the newbuild numbers it would take a significant jump in numbers to satisfy short-term demand let alone the long-term requirement for real estate.
Rental market
When you take into account the expected population increase together with the newbuild numbers it is difficult to see how rents can go anywhere but up in the longer term. If these expected population growth numbers are correct then there will be growing demand for rental property and this will allow landlords to increase their rental income. The markets will find a natural level at which the affordability factor comes into play but it will be interesting to see this scenario pan out.
We may see the local authorities stepping in to restrict growth in rents although in all honesty they will have their hands full trying to hold this market back.
Will the real estate market overheat?
Looking back to the turn-of-the-century there was phenomenal appetite for Dubai real estate which suddenly evaporated after the 2008 US mortgage led economic crisis. While this boom and bust scenario led to significant changes by the local authorities and the introduction of new regulations the next decade will test the management skills of the authorities to the limit.
One of the problems with the worldwide real estate market is that very often investors have short memories when the good times roll again. Hopefully this time we will not see prices chased to unsustainable levels but fear and greed could come into play again.