Is the Dubai real estate market deflating or collapsing?

While the recent performance figures for Dubai real estate do not make impressive reading whichever way you look at them, there is some debate as to whether the Dubai real estate market is deflating or collapsing. A recent report by consultancy firm JLL confirmed what we already know, sales figures are down, prices fell a further 3% in the third quarter (making a fall of 11% for the year ended September 2015) and the short to medium term outlook is mixed to say the least.

Even though it would be very easy to look back at the 2008/9 real estate crisis which eventually caught up with the Dubai property market, the situation today feels very different.

Deflating or bursting?

The headline figures do not make good reading for the Dubai property market of that there is no doubt. There is continued downward pressure on not only property prices but also rental income which is playing into the hands of buyers and those looking to rent – but they do not seem to be in a rush to commit. While the headlines will no doubt suggest that the Dubai property market is on the edge of a cliff looking down, the fact remains that we are yet to see a major sell off which is a traditional pattern for markets in freefall.

Confidence in the regulations

If we look back to the 2008/9 period the regulations covering the Dubai property market were very different to what we see today. There is now more control, more of a regulatory structure and indeed this has translated into renewed confidence for investors. However, it is easy to forget that against a difficult worldwide economic backdrop there are very few markets which will outperform significantly in the short term. Prior to the ongoing “correction” the Dubai property market had performed relatively well especially when compared to the other major property markets.

Will the buyers be back?

Dubai is seen as a luxury real estate market in the eyes of many investors and it is not difficult to see why. However, the last few years have seen a significant reduction in the number of new mega real estate developments and indeed the market is going through a transitional period with a significant increase in the number of middle-income properties in the pipeline. This will help to balance the Dubai real estate market going forward even if many buyers are still sitting on the sidelines.

Interestingly, while transaction numbers are down, following real estate prices in Dubai, conversion rates have increased with on average two purchases per five enquiries against two purchases per ten enquiries in the recent past. There is talk that prices will remain under pressure for the latter part of 2015 and perhaps the first half of 2016 but we have seen this trash talk before.

Conclusion

It really does depend upon which Dubai real estate property market article you read as to whether you are left with the impression the market is deflating or collapsing. The reality is that prices have been under pressure and they will continue to be so for some time to come. Buyers are sitting on the sidelines with transaction numbers down in line with Dubai property prices. However, buyers have not fled the area just yet and would appear to be waiting on the sidelines for a turning point.

When the market will turn is anybody’s guess although we could see some panic selling towards the bottom of this current cycle. Historically and traditionally this may well mark the turning point which many investors are looking for.