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Wed 4 Sep 2013 02:20 PM

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Dubai real estate growth 'different to 2008 bubble'

Double-digit rise in prices on back of improving fundamentals, not speculation - Standard Chartered

Dubai real estate growth 'different to 2008 bubble'

Dubai's housing market is growing on the back of improving fundamentals with low off-plan sales, according to a new report by Standard Chartered.

It said the improvement in real estate prices - reportedly up by more than 30 percent for apartments over the past year - was not caused by speculators in the market.

The bank's report said this, alongside increasing real estate regulation, differentiated the price rally from the one in 2008.

Factors enabling this improvement included Dubai’s growing economy, an increasing population, and the prospect of the city hosting the World Expo 2020, said the report, adding that these limited the possibility of a new real estate bubble.

The report said in the past twelve months, residential prices in Dubai have increased by 38 percent for apartments and 24 percent for villas while rents have risen 20 percent and 17 percent respectively.

"The key difference between the real estate market in 2008 and in 2013 is off-plan sales. Flipping of off-plan properties was the main reason behind the previous boom-and-bust cycle. Authorities are deploying efforts to ensure that off-plan sales are controlled," the report said.

It added that the market has particularly benefitted from the two new property-related laws drafted by the Dubai Land Department - the Investor Protection Law and the Code of Corporate Governance for Developers.

"We expect housing-market supply to grow at the same pace as demand, with new projects being launched in a more planned and controlled manner than in the past," the report added.

“This commitment towards improving and strengthening corporate governance practices by protecting property rights has helped gain new investors and maintain existing ones. Stakeholders such as home-owners and tenants have regained confidence in the real estate sector, as reflected in the recovery of market prices,” said Standard Chartered.

Dubai’s housing market is comprised of 417,900 apartments and 62,000 villas. Residential supply has been growing at an average compound rate of around 8 percent. By the end of 2013, supply should increase by 19,400 apartments and 3,400 villas, assuming there are no delays in construction schedules.

Dubai’s property market was hit hard after the global financial crisis, with prices plummeting around 60 percent in 2009 and 2010.

Recently, the IMF has warned that the Dubai property market is again starting to display early indications of another bubble.

But Standard Chartered's report concluded: “Right now, we conclude that there are no serious indications of a speculative bubble in the housing market.”

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justsayin 6 years ago

and when the bubble does burst, will purchasers be able to get compensation from Standard Chartered?

albie 6 years ago

Yep - and I'm going to believe SCB.

stephen 6 years ago

Every so often we stumble through a series of financial crises after over lending, over borrowing, over buying. Each time, the experts chime, "this time it's different" somehow claiming that the old rules no longer apply and that the new situation bears little similarity to past disasters. You also normally hear the phrase, "It's a new paradigm"!

I suggest SCB consider one of the more common economic definitions of bubbles, i.e. "trade in high volumes at prices that are considerably at variance with intrinsic values and more frequently, " a situation whereby asset prices appear to be based on implausible or inconsistent views about the future"

I am Sir, your most obedient savant.

Eddie 6 years ago

I don't know why SCB is trying to cover up the reality, everybody can see the same bubble building up and it is only a matter of few more months until it bursts just like it did in 2008.

Mike 6 years ago

I was looking at buying an apartment recently that was on sale at 3.8m - I offered 3.6 to reflect the work that needed doing in it, but the vendor refused saying it owed him more than that having paid 3.4m for it - 3 WEEKS EARLIER!

Doesn't sound much like sound fundamentals to me... but someone did buy it all the same...

sami 6 years ago

a report written by a fresh graduate, isn't worthy of the paper used.
SCB should be prosecuted if this turned out to be another bubble, coz what they are doing with such reports is only misleading real and genuine investors and putting financial pressure on residents.
this is what exactly happened in 2008, reports published by amateurs, and banks' greed which didn't have a limit.

John 6 years ago

Definitely different. One can't cheat the same people more than once. This time someone else is going to lose.

Red Snappa 6 years ago

What I believe the IMF were warning is that all the ingredients of a new bubble are manifesting themselves once again.

Dramatic double-digit jumps in selling price in only 12 months

Limited loan-to-value cap mortgage control agreed but still to become regulation.

Majority cash transacted market anyway, allegedly 80%.

Still no controls on speculative short-term buy and resale i.e. 'flipping' the primary driver of overheating in 2008.

$60 billion in GRE debt, much of it accumulated from the last property crash, to pay down from 2014 to 2016. Dubai debt now 103% of the combined GDP of itself and the Northern Emirates.

Plethora of enormously ambitious real estate projects launched regardless.

Dubai even more exposed to future global financial market volatility factors as result of increased debt pile. Regional conflict and unrest, US Federal Reserve calling a halt to quantitative easing in 2014, to name but two of a bonfire of volatilities.

Mohammad 6 years ago

People need to remember that SCB, is profit oriented organization and there peers.

Report has been generated to make way for their business to grow ( give loans, earn profit, repossessed property etc )

It would be interesting to read full IMF's report, and its fundamentals & do comparative study.

Anonymous 6 years ago

The moment you start reading articles like this, you know the penny is about to drop! As a Chartered Surveyor who carries out valuations for banks like SCB, it angers me when they come out with comments like this. We can see it coming a mile off and they should be too...

When carrying out valuations we are being hounded by there sales or credit team to always try raise the value by another AED50k, why, because the client is a so called "VIP", not because the comparable evidence says otherwise. There is absolutely nothing different about this bubble, yes it's been built on new money entering the region from countries like Syria/Egypt, but it's was no different in 2008 (Russians, Iranians and Africans)

Whats not different: Aggressive pricing by agents and landlords, speculation, positive press 24/7 and aggressive mortgage lending...