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Dubai’s property market: Doom or boom?
Features editor Shikha Mishra takes a look at what effect the credit crisis is having on the property sector in the region.
A housewife, Kam Rajnani, has been living in Dubai with her property consultant husband for the past two years and the couple have been dabbling in real estate ever since.
So obviously, visiting the biggest real estate show in the Middle East - Cityscape 2008 - was a priority for her. But, she left the exhibition disappointed.
There are phenomenal projects being announced, but I don't see anyone buying. I bought some property two years back in Dubailand and though on paper the value has gone up, I have no buyers interested in taking it off my hands," she says.
Even though projects worth almost US $200 billion (AED7.34 billion)were unveiled and about 100,000 people visited the Cityscape exhibition, there was a cautious approach to the real estate market as opposed to the gung-ho optimism of a few years ago.
The Market Real Estate 2008 report published by Oxford Business Group says forecasts of potential price declines have become a feature of the Dubai market as the release of new units escalate. Some reports have now concluded that the market will experience a 10% to 15% decline in rent and sales prices by the end of 2009.
In 2006 EFG-Hermes forecast that property values would decline by 25% to 30% by 2010. In August, a Reuters survey of senior analysts concluded that prices would fall 15% from the end of 2009. Morgan Stanley suggests that property values will fall by 10% between 2008 and 2010.
Though most research houses predict a softening in the market in the future, the current situation remains difficult, and the process of finding a roof over one's head is an arduous one in Dubai.
Rentals in Dubai continue to climb to levels most people can't put together even if they sold their vital organs, and investing in a property is beyond the reach of ordinary professionals.
So will the theory of "what goes up must come down" apply to Dubai's property market as well?
Most experts are reluctant to gaze into the crystal ball and predict what will happen in the construction and property sector, but they conclude that the global economic crisis will have an effect on Dubai.
"Of course the Dubai market is being affected by the worldwide banking problems and liquidity issues and there is declining confidence, which is a major issue. Most people's experience is that there has been a steady increase in property values which was more marked at the beginning of this year," says Kate Godfrey, senior consultant for Oxford Business Group.
Godfrey says that over the last month, values have declined between .5% to 3%, and these figures are a reflection that there is not much activity in the market, as most people are delaying buying or selling.
"Our current report focuses on supply and demand and the key issue for most people is the under supply. Among the projects anticipated to be completed this year there is 44% delay ratio, and only the rest of the projects will be delivered this year, so we expect this under supply to continue for some time.
The rental market has been strong with the number of people moving to Dubai at the moment, especially with the government taking action against multi-tenants living. If there is any decline in capital values, I think it will be very healthy," she says.
But Dubai is not immune to the effects of the global financial crisis.
"There is a tremendous amount of liquidity in the Middle East, which is most important in times of constriction in the capital market," says Nicholas Bashkiroff, chief development officer for Ruwaad.
"Real estate is a cycle anyway. What we are seeing now is a bit of an aberration given the nature of the global markets. But there will be opportunities created as a result of that," says Bashkiroff.
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