If you own a home in Dubai, should you stick or twist?

Ryan Mahoney’s comments on the local property market should be required reading for any potential investor or seller, says Anil Bhoyrul

If you own a property in Dubai, these are interesting times. In fact, quite nervous times. Last week, for the third time in a month, a complete stranger knocked on my door and asked whether I would be interesting in selling the apartment I bought just over two years ago. Like the previous two, he was offering me a premium of close to 60 percent on the price I paid.

It makes you think, doesn’t it? Like a lot of homeowners, I actually rather like my house. I don’t really want to sell, and if I did, I could only afford to buy my own place again.

But then the numbers start playing games with your mind. Sixty percent? Hmmm. I do the sums every day, sometimes twice a day. I could take the cash, and have enough to send our kids to school for the next five years without worrying about it. Our family wouldn’t be rich, but we would be comfortable. My wife might even allow me to buy a proper TV before the World Cup starts.

Then the mind games really start. What if prices keep going up at this rate? In two years’ time, we could go from being comfortable to rich. I would never have to worry again about Dubai’s ludicrously high school fees. Life would be seriously good.

Unless, of course, the property market crashed.  Then we would have blown our one and only chance in life for financial stability, and would spend several years regretting it. It’s a tough call – stick (stay put) or twist (sell up)? In this week’s issue, the CEO of the region’s biggest real estate chain Better Homes, Ryan Mahoney, does an excellent job of trying to answer this very question, stick or twist? Is Dubai’s property market going to crash again?.

To be fair to Mahoney, his analysis is one of the best we have published in a while. Rather than do the obvious and heap praise on everyone and everything, Mahoney argues we should be cautious for many reasons. The warning signs appear to be there again. As Mahoney says: “Recently, we have almost reached a notable, and possibly worrying, milestone - pre-crisis peak prices…The sales price rise is good news for sellers, but the flip side of prices being comparable with what they were before they crash is that it prompts fears that the market is over-heating. Another concern for investors is that rental yields are falling. They peaked in early 2011 and then fell, hovering above four percent at the end of last year. They could fall further if sales prices continue to rise faster than leasing prices, making the market less attractive to yield-oriented investors.”

Mahoney made this very point two years ago when he spoke at the Arabian Business Forum, though at that time he merely warned that we should watch out for this very day – when sale prices are going up so much faster than rents. It makes the market unattractive to investors who see their rental yields going south – and as such, can lead to the first steps of a property slowdown/meltdown/crash (depending who you believe).

I agree with much of Mahoney’s more detailed analysis in which he also points out that the industry is very different (and better) to 2008, with a far stronger RERA, better regulations, a mortgage cap, and higher transfer fees to stop the market rising too fast  too soon. Except that it has done just that. Having all the tools in place to stop a property bubble is one thing. For them to actually work is something completely different.

As Mahoney says, “Seeing as most us in the industry failed to see the signs last time, we may be blind to it again this time.”

So, stick or twist? Personally I will probably twist, as I think it is worth heeding Mahoney’s warning this time around. But I hope I am spectacularly wrong.

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Posted by: Peter Cooper

Stick, unless you have a better place to invest your money. Having a subsidized home is just as useful as paying school fees. Besides will you really get back into the market at the right time, assuming it does go down? You were very skeptical about your chances of making a fortune when you bought, so I was right and you were wrong about that. Is this deja vu all over again?

Posted by: who2

Anil, based on the article today on the dramatic slowing of price growth, as well as the excellent comment from oblivion spokesman, I suggest you twist as fast as you are able to!

Posted by: Manish

Every market goes the phases of growth and correction. We saw correction in 2009 which followed by stronger growth. Most will agree that next correction is imminent, with EXPO 2020 one can assume that 2017 to 2020 we can witness growth backed by several infrastructure projects and steady increase in population + visitors. Thus the period of correction could be 2015, 2016.

No doubt that we are currently backed by stronger economy, RERA, mortgage caps but annual increase of prices by 20 to 30% is not sustainable for coming 6 years (till expo 2020). I would TWIST and wait for new wave post correction.

In case of multi property owners 50% liquidation is definitely advisable.

Posted by: Jade

Twist is my choice. The sellers have started to understand that their asking prices are too high to attract potential buyers. Nobody is willing to pay these insane prices knowing fully well that the property market is still immature and is highly unpredictable. The supply and demand also plays a vital role in the reality market. The high prices turn off potential buyers thus reducing the demand. Too many new residential projects and off plan sales in the recent months also plays a role in prices coming down. Excess supply and low demand coupled with sky high prices is not a good sign for any market.

Posted by: Vicky

Stick, is the answer. Analysis of Ownership Cost Vs Rental Cost doesn't really stand good for UAE at the moment. The reasons for property purchase are far more diverse than financial common sense. Some park the idle cash in the form of real assets, some buy into crowd mentality without thinking of ROI factor, some get into properties just to avoid the mental agony and uncertainty of dealing with erratic land lords year after year and many are just dumping their slush funds from colorful and troubled nations (and there are a good number of them). Therefore, it is expected that the property prices and rental index will perhaps maintain independent course. Perfect recipe for a storm, one might say. Seriously?

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