While the rest of the world struggles to come to grips with the credit crunch it seems as though the party in Dubai goes on and on with demand for property on the increase and more new ventures appearing on a regular basis. While Dubai is a fairly new market to the international property scene and not yet fully developed, why is there so much confidence in the area and is it misplaced in any way?
In order to understand the growth in the Dubai market it is vital to understand where the demand is coming from and whether it is likely to be a long term play or a fashion play in a sector which has seen many new property markets crash and burn.
The strength of Dubai, from an international property investor’s point of view, is the fact that the State is attracting not only wealthy Western companies which are looking for a base in the region and wealthy individuals but it also has a tourist market which has mushroomed over the last few years. The region has certainly become something of a hot spot for a number of reasons, but all hot spots cool at some stage – is Dubai reaching that critical point whereby the supply demand balance is tilting in the favour of supply?
While Dubai is often associated with the oil culture of the region, it is not one of the major oil producers of the world with oil income less than 10% of the States overall annual income. However, it has benefited to some extent from being located in an oil rich region which many have seen as a safe haven in the current economic turmoil gripping the rest of the world. It is this safe haven image, the mass of money pouring into the region and the fact it is seen as a Western friendly corporate base which has been the feeder behind the recent rise in the property market. But how long can the buoyant property market last before a correction, slow down or cooling off period is encountered?
If you look across the many forums, websites and information booklets available on Dubai there seems to be a growing consensus with regard to forecasts for the future. More and more we are seeing predictions that 2010 will see the supply demand seesaw tilt in the favour of supply and lead to a cooling of the market. But if this is such an easy call, as many people are claiming, why would an investor wait until everyone else starts to liquidate their assets in 2010 when they could bank a profit between now and 2010?
While the timeline of 2010 is based upon the number of projects set to come on line, and demand at the moment, many people seem to be missing two vital elements of the Dubai property market, the tight control which the authorities have on the market and the growing number of tourists visiting the area. The authorities have shown a speed of foot which many around the world would relish, as and when they see trouble ahead they have no hesitation in stepping into the breach to implement new laws, restrictions and assume a general control of the situation. That is not to say that they can fight market forces, just the rulers of Dubai have a fairly good track record in being proactive rather than reactive.
The tourist element is also very interesting with billions of dollars spent on the tourist industry over the last few years. Airports, new resorts, hotels and services in the region are literally second to none and this extra capacity which has been created looks set to be filled over the next few years. Indeed we have seen a record investment in planes by the Emirates Group which dominates the airline industry in the region – the group will soon have over 100 planes at its disposal.
There is also much mention in the press about the ever increasing number of regions which the Emirates Group is linking up with. Each new route brings with it a new crowd of investors, a new tourist market and a new group of corporations who may consider opening a base in the region. It would be foolish to underestimate the power of the developing transport network in Dubai and the fact there are many areas of the world still to be brought into the picture. But will this see Dubai beat the traditional property cycle?
At some stage, after the Emirates has brought in as many different areas of the world as it can, after the tourism market peaks and after supply starts to exceed demand, we will see a return to the traditional developing property market cycle. Slow burn at the start, investment by the state, interest from investors, exuberance on the side of investors, supply starting to outstrip demand and then prices starting to cool.
In the long term it is vital that the markets are not immune from the traditional cycle as this will see the demise of the short term property investors (those who like to chase the latest trends in the market and then bail out when a developing market becomes a developed market) and the gradual introduction of the longer term property investor, those looking to invest in the region on a long term basis.
Dubai’s Immunity to The World
To suggest that Dubai is some how immune from the general ups and downs of the property sector is wrong and the more people continue to talk the markets higher and higher, in the face of evidence that supply and demand will soon meet (at least for the short term), the larger the correction will be. But Dubai has substance to it, it has masses of invest funding from the rulers of the region and it has a tourist industry which has grown massively but is still very much in its early stages.
Whether the supply demand balance tilts before or after 2010 we will see a cooling of prices, a possible sharp correction but the outlook for the region is still very positive and the signs are that Dubai will be a major player on the worldwide property market for many years to come.