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Sat 4 Apr 2015 01:23 AM

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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

What on earth is happening in the Dubai property market?

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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Paul King 5 years ago

The wise listen to no one about Dubai property, the market is too immature. The leaky concrete boxes of the UAE are the modern Swiss bank account. Therefore, always expect big surprises both up and down.

Altamash Javed 5 years ago

This correction is badly needed. Thank the stars it didn't get out of hand again...because it was heading that way last year. Rents are still sky high. Hear the people, easily the majority are struggling living here and I know many who are leaving or contemplating to.

When one hears of salaries on average rising 5% and rents up 4-5 times that you know this market has no sense. 2015 will be the year to correct rents...house prices started ages ago but only now the genius brokers are accepting it.

Simon brooks 5 years ago

Do an open search & you will find 23,432 properties for sale in the dubai marina & 3,122 properties for sale on the Palm jumeirah.
Property prices go up when there is restricted supply & people are happy to pay more to live somewhere, there is no restriction on supply in any area of dubai ( there is a vast oversupply ) & the market is full of investors, not people intending to live there.
The market is false & simple economics says it has to go down to reach balance, I suspect a fall of 40% is required.

Tanvir Shah 5 years ago

Anil, good article. Accurate in the numbers, however the final para analysis seems too inward focus on the domestic economy indicators.
Do you believe that external factors, especially the global capital flows given the key export income of Oil and liquidity crunch anticipated with QE tapering, might also have an impact? Are international investors reducing their exposure to local real estate a factor here we might have missed?
Look to hearing from you.

Anil Bhoyrul 5 years ago

All those factors certainly count but I think it comes down to market sentiment. Right now everything thinks prices are falling so no one is buying - and so prices keep falling. At some stage sentiment will change, but you are prob right about international investors reducing their exposure.

ASH 5 years ago

Paul... The shortest and most accurate description of the Property Market in DUBAI.

desert dream 5 years ago

Property in dubai is no longer a quick trade or in and out investment. Those days are over though in 2013 it showed a glimmer of hope before reality set in. Now once again investors are caught at the top end of the cycle. This time the market rates have fallen in different ways. I would personally onky look at investing in the downtown difc and perhaps those new villas in meydan if price permits. Jcv and jvt dont have a hope. Marina is now down market. And palm is hype.

SKP 5 years ago

Good article... There are plenty of units for sale in the market, which is mainly due to the fear of a softening market, interest rate increases and expected oversupply due to so many new projects. However, the rental situation which is currently in favor of tenant will change again by next year due to new job creations and increase in population which will again change the trend, but slowly. Furthermore, watch for 30 Jun 2015, if a decisive agreement is reached with Iran, that would be another calcitrant ....

Not a fan of Nakheel 5 years ago

I suspect some of the drop in prices on the Palm Jumeirah is due to all the well-documented problems the residents are having with Nakheel management. The Palm would be a great place to live if it wasn't for Nakheel

Sandy 5 years ago

Simon, don't go by the listed properties on websites. There may not be as many and the market is in the hands of (frequently creepy) real estate agents. Many share the same database and publish the same unit multiple times. When you actually start calling, most are referring to unit, handled by someone else. This is true for both rent and sale.
Government authorities need to do more to control these agents - earlier there were talks of a rule limiting a max of 3 agents working of any property. Something like that should be there to show a more truthful picture.