Dubai property market: meltdown?

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Yes | No

Jamil Kassab, Riyadh, KSA: YES

Meltdown is a strong term, and a complete meltdown will not happen. What the real estate market is trending towards is a period of stagnation followed by a decline (correction) of 15-25%. Dubai is now in the stagnation period; prices have stabilised over the past six months. It is unclear if prices will drop in the near future, but the cyclical nature of the market will force a drop within the next two years.

There are two main reasons why a correction is inevitable: increasing supply and speculative overvaluations of existing stocks. These factors exert pressure on prices, and it is only a matter of time until prices catch up to market fundamentals. First, let's look at increasing supply. It is no secret that more than 125,000 new units will be on the market within the next 18 months, even with delays. That number is dwarfed by the number of units under development in neighbouring emirates and those that will be completed by 2010.

For a serious real estate investor, one of the most important statistics that influence decisions is the job creation data that segments new jobs into salary brackets. An example of this data would basically show that 2000 jobs were created that pay US$125,000 or more. These two numbers give investors and developers a good idea of what demand is like for a certain type of property. Without these numbers, people are building property with blindfolds on. The overpricing of property in the region is a more subtle problem, but it will be the main factor in driving prices down. Looking at Dubai's property prices, it is clear that there is imperfect valuation somewhere. Rental yields are too high - people expect 15-20% annual returns, where the normal rate is closer to 7% - so there is a pricing problem. But the oversupply problem will force rents down, and therefore investors will no longer pay a premium for an under-performing asset. Property prices will follow the decline in rents, resulting in a revaluation (correction) of 15-25%. This is the trend, and I for one will not be taking Dubai Bank's 99% financing deal for Jumeirah Beach Residence any time soon.

Uzair Hassan, Dubai, UAE: NO

Dubai consists of two types of people: those who have invested in the property boom, and the ones who haven't. Those who have are the people with the bullish outlook on the market and those who haven't obviously have the bearish outlook. Gravity plays a role here and there would be a correction, not a meltdown, in the long term. The market has a long way to go and the average prices would end up somewhere in the region of US$544 per sq ft. Only then do I see some "correction" balancing the market forces, may they be speculative or otherwise, not before.

MD Gidwani, Dubai, UAE: NO

I don't believe it will happen. Having lived in the Emirates for over the last 30 years, I've been proved wrong again and again as I too was a sceptic in the past, but not any more. I believe the policies undertaken by the Dubai government will keep driving the boom in the property market for another couple of decades. In the past, Dubai has defied all laws of gravity, economics and the seven year itch.

And, if for any political reasons in the region, there has been a dip, the comeback and recovery rate has been much faster than the decline.

Anonymous, Dubai, UAE: NO

Talks about a drop have been going on for ages, nevertheless, each building which is being finished is rented out and one still cannot find reasonable rentals. Many predicted in 2007 that the market would overflow with property and prices would consequently drop, however, the reverse has happened and the prices of new property on the market has increased instead. I believe we either have to resign ourselves in staying in our previous flats or pay more. Where is the meltdown as long as the financiers are recouping their money?

Reader, via email: NO

The pundits have been predicting this for quite sometime while the newspapers screamed: ‘Prices will drop'. What happened is the exact opposite and, I believe, there's still room for an increase, even if it will defy all logic.

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