We only need to look back at the 2008/9 worldwide economic downturn to see the impact this had on the previously buoyant Dubai real estate market. This was a market which came from nowhere at the turn-of-the-century to emerge as one of the hotspots of recent times. However, when the US mortgage crisis hit home we eventually saw investors fleeing from the Dubai property market leaving property developers to go under, banks with substantial losses and the Dubai authorities with a massive headache.
Many had predicted that Dubai would never be the same again in the eyes of foreign investors but less than 10 years later it seems that foreign investors are yet again being drawn to the Dubai real estate market.
While the worldwide economy is struggling at the moment, with Europe in particular under enormous pressure, it was reported that property prices in Dubai increased by 2% between the final quarter of 2015 and the first quarter of 2016. While no great shakes when you compare this to the previous performance (prior to the crash), in the current worldwide economic environment it is certainly interesting.
During 2015 the states of the Gulf Cooperation Council (GCC) were the highest investors in the region ploughing in $11.9 billion. The second largest investors in the Dubai real estate market were British citizens investing a significant $2.6 billion during 2015. This despite the fact many UK investors, along with their overseas counterparts, felt the pain of the downturn in 2008/9.
Capital appreciation and rental yields
On paper the 2% increase in property prices between the end of 2015 and the first quarter of 2016 are not necessarily impressive. However, compared to other countries around the world they are at least in positive territory with positive forward momentum expected to push prices further ahead in the short to medium term.
One fact which is often overlooked in relation to the Dubai property market is rental yields. When you compare the average 7% yield on Dubai property, to between 3% – 4% in London not to mention a lower 2% – 3% in Hong Kong, the state of the market does compared very favourably. As property prices move higher we may see a reduction in Dubai rental yields but ongoing economic strength should certainly offer a degree of support to the market for the foreseeable future.
It will come as no surprise to learn that Dubai, Abu Dhabi and Sharjah are still the regions hotspots in terms of foreign and local investment. At a time when Europe is struggling to maintain any type of forward momentum we have also seen significant investment in infrastructure and regulatory frameworks within Dubai and its neighbouring emirates. It is also interesting that real estate in Dubai accounts for 21% of gross domestic product and is therefore a vital element of the economy going forward.
We can only hope that the Dubai authorities have learned their lesson from the 2008/9 downturn when an obviously overheated market was left to its own devices. As we saw when the market finally turned down there was limited liquidity and the financial system froze creating a mess which has taken some time to sort out. Indeed many investors from the 2008/9 period are still pursuing property developers and financial institutions for compensation.