Will Dubai avoid the dreaded real estate bubble?
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. The massive rise in property prices ahead of the 2008 financial crisis took many by surprise as did the crash and burn as liquidity dried up and investors looked to repatriate their funds. However, over the last couple of years we have seen a significant increase in the cost of Dubai real estate amid concerns we could be headed for the dreaded real estate bubble.
Thankfully, we are starting to see signs that the market is levelling off and the “overexuberance” seen in recent months is losing steam. So, what are the tell-tale signs that perhaps the Dubai real estate market is not headed for the traditional crash and burn?
Real estate price rises slowing
If you look at the recent third-quarter report on the Dubai real estate market you will see that annual real estate price growth has fallen to 23%. While this is still a significant year-on-year growth it is a very interesting indicator that perhaps investors are now looking elsewhere and believe the market may be fully valued in the short to medium term. Indeed residential sale prices increased by just 1% compared to the second quarter and when you bear in mind that growth in the second quarter was some 6%, this does seem to indicate a significant cooling of interest?
Quote from PropertyForum.com: “What are your thoughts about the Dubai real estate market in the short, medium and long-term?”
Why is demand fading?
There seem to be a number of reasons why demand for Dubai real estate is fading which include a change of regulations by the Dubai authorities and perhaps more importantly a mismatch between buyer and seller expectations. Historically many buyers would pay the full price for Dubai property to get a toe in the water and some exposure to what has been a phenomenal real estate sector. There seems to be a sea change in this particular area with buyers looking for better value and sellers not willing to discount their prices – yet!
This impasse between buyers and sellers will likely have an impact upon short to medium term real estate prices in Dubai. This will be reflected in future quarterly reports and if we see further fading of interest in Dubai then some investors may well decide to cash in their chips and look elsewhere. If this was the case, this would be yet another element of downward pressure on Dubai property prices which would hopefully help to avoid the dreaded real estate crash.
Conclusion
While it is interesting to see that demand for Dubai property is starting to fade a little, asset price rises are slowing and the government seems very keen to keep prices in check, history shows that Dubai can turn very quickly. However, in this particular instance we would not be surprised to see long-term investors in Dubai property starting to cash in their chips and look for better value in markets elsewhere.
Indeed when you bear in mind the precarious financial situation in Europe and other parts of the world, not to mention the ongoing fight against terrorism, these are also other negative factors. These factors increase the returns need by investors for what they see as greater risks in the short to medium term.