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Dubai: no bursting bubble
Great achievements come through optimism and setting targets is much easier than ensuring conformity. The Government of Dubai has been progressing in terms of development by setting its targets at optimum levels all the time and has succeeded. The number of visitors to Dubai has been increasing; from around two million in 1999 to more than 6.5 million in 2006. A figure of between 12 and 15 million is anticipated in the next five to seven years.
Demand for accommodation has increased over the past four years and to keep pace, a large volume of construction has been carried out in Dubai despite soaring real estate prices. To accommodate the expected 15 million visitors, the amount of accommodation available has to double. All major players are in the game and will they ever give it up following such large investments?
Businessmen see money to be made in the hotel industry and the for demand hotel builds has inflated real estate prices. But what will happen when hotel rooms flood the market? Will the supply exceed demand?
For demand to meet supply, the inbound leisure market must expand. This will only be possible when mega projects such as Dubailand and Bawadi take shape. This will also increase all the related businesses and so the demand for accommodation in general will be sustained.
Today the floating population is very high due to ongoing projects in the region and this will continue for another six to seven years, hence the hotel and short-term hotel apartment business will flourish for a long time to come. However, there could be a drop in long-term stay accommodation prices as the supply is expected to increase once the buildings under construction are released into the market, both in Dubai and Sharjah.
Ultimately people are choosing Dubai for leisure, shopping or lifestyle and the emirate will continue to grow and attract visitors and residents. Soaring real estate prices have to be looked at in terms of cause and effect; the basis of all economies.
If demand for the hotel is the cause, one will witness its impact in other related industries such as real estate. Once the cycle is completed then stabilisation will take place. Some will lose and some will gain.
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