Stop bashing the Dubai property market

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For those interested in Dubai there is a very interesting thread on the propertyforum.com/forum which covers the Dubai property market and various angles investors and the media are using to describe the situation. This particular thread was instigated by someone who obviously has a detailed knowledge of the Dubai property market and is highly critical of other investors who appear to be trying to drag the sector down.

There are many elements to this argument, both for and against, and there are many factors which need to be considered when looking at the Dubai property market and the potential for the short, medium and longer term. Fundamentally differing investor opinions are what make markets and there is nothing wrong with expressing an opinion of a particular market, such as the Dubai property market, in a straightforward and factual manner. However, when you consider the importance of the Dubai property market in the region and the substantial amounts of money which have been invested there is a tendency for emotions to run high and sometimes overshadow the factual situation.

Some issues to consider regarding the Dubai property market:-

Government intervention

This is something of a double-edged sword because when the market was flying high nobody was really overly concerned with what the authorities were doing and the changes they were making (sometimes overnight). However when the markets start to wobble and investors were looking for reasons to take a profit many suggested that substantial government intervention was causing problems and introducing a significant downside to the market.

There is no doubt that the one element which can seriously dismantle any investment market is uncertainty and the fact that the Dubai authorities were able and willing to change vital elements of regulation and law literally overnight has had an impact upon the way some investors feel about the market.

However there are some investors who believe that the actions of the Dubai government and the speed at which they have introduced some laws can be positive in the medium to longer term. It really depends upon your outlook of the market and your investment timespan as to whether short-term implications will affect the long-term value of your investment.

Bank finance

You can have the best property market in the world, investors from all over the world, developers building the perfect properties for investors but if there is no finance available this will have a serious impact on the performance of the market. There is a suggestion that the ongoing worldwide credit crunch and economic downturn forced a number of banks in the region to reconsider their position and their lending liquidity although the local and worldwide property press used this as a reason to suggest the property market was due for a fall.

In some ways this gave the banks the perfect excuse to reduce liquidity and come across as being realistic in a very difficult market. The fact is that any banking institution in the world will always put its own interests before those of customers and the wider market although many banks do follow suit as economic environments change. The higher than average lending to deposit ratio is also something to bear in mind as this put the banks in a very difficult situation which forced them to act before the property market collapsed.

The Dubai property market

There is much debate as to whether the Dubai property market pushed ahead too far too quickly, whether the market is actually immature and whether the actions of the local authorities did scare away many international investors. The truth is that the Dubai property market is immature compared to many around the world and while prices continue to soften there was no way the market could continue to run ahead at rates seen just a few months ago. A market consolidation can be very healthy, especially in a new market, but can often lead to a snowball effect with investors panic selling to protect their assets and their “paper profits”.

Prior to the fall in the Dubai property market there had been suggestions that the market itself was insulated from the economic downturn around the globe and the various money market issues. Unfortunately, when faced with a situation as we see before us today there is no market which is safe and no market which will escape unaffected. Those who tried to put Dubai forward as a “safe haven” were successful for a short time as investors looked for “sheltered areas” for their investments. However, it soon became apparent that this media and property development led story was in fact incorrect.

The five minutes ago investors

There is much mention of the “five minutes ago investors” suggesting that many investors and market observers are often too short-term in their views and opinions. This is actually a very good point and as suggested on the thread the fundamentals of a successful long-term Dubai property market are still there. Amongst the doom and gloom of today investors will surely see the blue skies as and when the global economy starts to pick up and property investors start to put their “toes back in the water”.

The fact is that many property investors around the world, and in Dubai in particular over the last few months, are ruled by fear and greed. There is greed when chasing prices higher and higher in order to “grab a slice of the action”, even when prices may have become detached from “reality”. On the downside there is a fear of assets falling in value, and what the future may hold, which can lead to panic selling at distressed prices – the snowball affect which gets larger and larger and is in many ways a self fulfilling prophecy!

Conclusion

This particular thread is one which has attracted significant emotion, differing opinions and suggestions of different reasons as to why the property market has fallen back. The fact remains that without differing opinions there would be no market although how and when these opinions are presented can influence those who “like to follow”.

One factor which stands out amongst many is the comment that a substantial number of those offering their opinions on the Dubai property market may never have actually visited the area. On the flip side there is the obvious influence of property developers and property agents in the region who would benefit from a “feelgood factor” in the Dubai property market.

When you look at your own investments you need to consider your requirements, your time-span and your own opinion of the market into which are about to invest. While it is worthwhile reading various comments about the Dubai property market you need to balance positive remarks with negative comments and come to your own conclusion. At the end of the day there are significant influences out there with a particular “axe to grind” but it is YOUR money which you are investing.

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