What on earth is happening in the Dubai property market?

Anil Bhoyrul wonders whether this is a softening, a bigger correction, or even the start of another crash
By Anil Bhoyrul
Sat 04 Apr 2015 01:23 AM

These are strange times for anyone involved in the Dubai property market. And anyone living in the emirate, by virtue of either renting or buying, is involved. We all agree prices are falling — but how fast?

As every expert I speak to tells me, it’s all about “location, location, location.” So let’s look at a few locations, starting with the Palm Jumeirah. Apartment sale prices there along the coveted Shoreline (based on current listed prices) are generally down around 20 percent against 18 months ago. Assuming the drop is the same on actual transaction prices, that’s a hefty fall. Downtown Dubai, which we are constantly being told is immune, is also experiencing falls. Some parts of the developments are 10 percent down over the same period. Dubai Marina sale prices — again, I’m basing these on our database of listed prices that we monitor — look to have slipped between 10-15 percent.

The same goes for rentals. The issue here is the increasingly large number of unrented properties, and the increasingly desperate landlords who are prepared to take huge drops just to get a rent cheque.

Our own Dubai Property Index, using Better Homes’ live data, doesn’t make for much happier reading. It shows a studio flat in Downtown Dubai having fallen in sales prices by 3.1 percent over just the last quarter — though no change in price for bigger apartments. Better Homes’ data shows fairly sharp falls in studio rentals over the past quarter in Downtown Dubai (3.75 percent) — but relatively modest drops in both sale and rental prices in other developments such as Jumeirah Village Circle and Arabian Ranches.

There is only one conclusion to come to from all this, which is that wherever you look, whatever kind of property you look at, prices are falling. But the really big question is whether all this is a softening, a bigger correction, or even the start of another crash.

Emaar shares are down over 10 percent in the past month, while other property and construction stocks in the UAE are also flashing red for the past month: Aldar is down 5.25 percent; Arabtec down 22.2 percent; RAK Properties down 13.5 percent and Union Properties down 3 percent. The DFM Index itself is down 6.2 percent in the last month, and a huge 23 percent over the past year. The massive queues that we saw for off-plan sales just a year ago have disappeared, replaced by both caution and fear.

But is a crash coming? Despite all the above, I believe not – what we are seeing is a fairly big, and not entirely undesirable, correction. What matters most is the fundamentals. Dubai saw 4.5 percent GDP growth last year, and a 6.5 percent rise in employment. The much-respected Brookings Institution ranked the emirate as one of the world’s five fastest growing economies. Most important of all is last week’s announcement that the UAE is finalising a new law that will allow 100 percent foreign ownership of businesses not in free zones. It isn’t entirely clear when this will happen, or which sectors it will apply to, but I suspect this will be a game changer.

Coupled with the phenomenal growth of Jebel Ali port and Dubai World Central, and Expo 2020 (and the massive jobs boost it will bring) just five years from now, there is actually plenty to be optimistic about.

True, in recent months quite a few property speculators may have got badly burned. But that’s not a bad thing is it?

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