Have the Dubai authorities learned from the recent real estate collapse?

When you look back over the last 10 years it is perhaps the Dubai property market which best epitomises the rise and fall of the worldwide economy. This is a real estate market which was to all intents and purposes an irrelevance for many investors then suddenly at the turn-of-the-century funds began to flow in. The economy was booming, expats were flocking to the region and this fed an already inflated Dubai real estate market.

Then suddenly, as the US mortgage crisis lurched from bad to worse, we saw a wobble in confidence which led to a mass exit from the Dubai property market. There have been many reviews of this sudden collapse over the years, many experts have had their say and all kinds of reasons have been put forward for the fall. However, the vital question remains, have the Dubai authorities learned their lesson?

Strict control on funding

If there was one element of the 2008 Dubai property market crash which stood out like a beacon it was the reckless lending from financial institutions in the region. We saw investors ploughing money into assets which were already “overvalued” without any warning or any advice from the financial institutions of Dubai. It seemed obvious this was an accident waiting to happen and while the initial wobble in the worldwide real estate market, and worldwide economy, seem to feed the Dubai real estate “dream” this very quickly turned into a nightmare.

Quote from PropertyForum.com: “What are your thoughts about the Dubai real estate market in the short, medium and long-term?”

As expected, once we heard news of a major financial institution beginning to struggle in Dubai this drained the confidence from the market, investors cashed in their chips and prices began to plummet. The authorities were slow to react and very quickly the situation was out of control with many banks and financial backers left with assets worth a fraction of their recent highs.

Subtle control of investors

One of the main problems with the Dubai real estate market was the fact that there were no real controls on investment and the financial market was basically a free for all. However, over the last few years we have seen the introduction of a regulatory structure similar to that in Europe and other parts of the world, restrictions on lending and subtle economic levers being pulled by the Dubai authorities. These subtle warnings of potential problems have caused some investors to think twice while others remain eternally upbeat on the Dubai property market.

We can expect the introduction of more regulations, more “guidance” and more direct action by the Dubai authorities if they see the market overheating and a potential crash on the horizon. This has given many investors greater confidence in the region, with safeguards now in place, although no investment market is totally risk-free.

Conclusion

At the turn-of-the-century we saw a massive increase in overseas investment in the Dubai real estate market. The government was happy to let investors dictate the short to medium term direction of the markets, financial institutions were falling over themselves to provide cold hard cash and demand for property continued to rise. Many, rather foolishly, believed that this could go on for ever and a day even in light of the worldwide economic downturn which began in 2008.

Initially some investors had even suggested Dubai was something of a “safe haven” during the worst economic downturn since the great crash. This new-found confidence was shown to be badly misplaced as the first wobble in the Dubai financial sector very quickly led to investors cashing in their chips “at any price”. While it would be wrong to suggest there is no work to do and everything is finished, it would also be wrong to suggest that the Dubai authorities have not learned their lesson from the 2008 crash. Whether investors have learned from the downturn remains to be seen!