Have the speculators ruined the Dubai property market?

We have covered the Dubai property market on a number of occasions but there is a brutal truth emerging over the last few days with regard to the property market. While just a short few months ago the market was seen as impregnable it seems that the faith and confidence which was washing over the top of the worldwide property slowdown has now dried up.

It is only now that we are starting to see the lack of depth in the market and what many are seeing as the obsession with short term gains at the expense of long term security.

The basis of any property market

The basis of any property market, the backbone of the economy is homes which people will actually live in, not the sky high office blocks, the massive retail parks or the growing resorts, pure and simple homes for people who need them. Without this backbone sooner or later the market will be found out and when the financial pressure starts to mount, as it has done in areas such as Dubai, the short term investor, the flippers, will be the first ones out of the market leaving development companies high and dry and the ‘wrong’ type of property piled up on the sidelines.

To use the UK property market as an example, while it is suffering terribly from the downturn it will pull back at some stage because there is a very string backbone of homeowners who at some point (assuming the negative equity issues subside) will look to move home, bringing in first time buyers and ensuring that there is depth to the market. Areas such as Dubai have not been able to attract that core backbone at the moment which is why some are even questioning whether this is the end of the boom times in the Dubai property market.

Dubai on the surface

If you check the headlines about Dubai you will see bigger and grander properties being build all of the time, the highest skyscrapers in the world, the most expensive airport which are all targeted at the higher end of society. How often do you hear of new lower valued property developments? Homes for the general public in the area?

A number of estate agents in the area are reporting the fact that panic is setting in amongst some of the regions high spec investors, the ones who go for the prime sites at the top of the range prices. Despite the fact that many have literally made millions over the last couple of years they are seemingly running scared at the first sign of trouble. In a perfect world, the panic being shown amongst those investing in the higher end of property market should not affect those who have homes in the region but it does.

We are seeing more and more investors lowering their prices to liquidate their assets and move on, but the more who join the party the lower prices are pushed, which also has a knock on affect to other areas of the property market and general market sentiment. In many ways this is what makes a fall in the likes of the Dubai property a self fulfilling prophecy, but is it all the fault of the more speculative investors, the investors who like to flip their properties for a quick buck?

The blame game

As the market in Dubai continues to come under more and more pressure and banks start to tighten their lending guidelines we are starting to see the emergence of a blame game. This is the time when certain areas of the market are pinpointed as being excessive and too risky, where investors are accused of running scared and where confusion and panic tend to reign supreme. However, the truth can be so very different from the fiction!

The fact is that the Dubai property market, after being controlled very well initially, started to get out of control a little in the early part of 2008 with many property investors looking for safe havens to hide their money – what better place than oil backed regions of the world where money literally is no problem? Step forward Dubai………

As new money poured into the region and demand continued to spiral higher, in direct contradiction of the main developed property markets of the world, many were suggesting that the rise had a lot further to go after wrongly assuming that the banking sector would remain unscathed. While it was something of a surprise to see the banks of Dubai coming under pressure so quickly, in hindsight they could not fight against the tide forever.

Is this the end?

Those who are suggesting that the Dubai property boom is over are probably those who have been in the market since day one and are seeing fewer short term gains to be bagged, those investors who are looking for something so much different to the norm. A developing market can never stay in its early stages of development for ever and will at some point move more towards that of a developed or more mature market.

This is when the short term flip opportunities will start to falter, when developers will start to look at the more general market and when investors start looking below the surface for secure backbone. While it is unclear whether we have reached this stage in Dubai there is no doubt that the property market has left the first stages of development and is now moving onwards. This in itself is no bad thing as we start to see the more speculative investors ditching their assets and longer term players enter the market.

The only thing wrong with that natural progression at the moment is the fact that while short term investors are leaving the market there are few of the longer term variety looking to take up the slack because of the financial unrest and worldwide economic slowdown. They are more than happy to see the short term investors dumping their stock and forcing prices lower before they will stick a toe back in the water.

The Dubai property boom may have grounded for a short while but it will be back and so will the longer term investors now they have shaken out the short term players.

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>