If we look back over the last 20 years the economy of Dubai, and indeed the real estate sector, has seen extreme highs and extreme lows. This is an area of the world which was relatively under researched prior to the turn-of-the-century and then suddenly became the property hotspot of the world. This happened just prior to the collapse of the US mortgage industry and ultimately decimated the Dubai market which was already beginning to become a little “frothy”.
However, just six years after the collapse in worldwide real estate prices and the repatriation of an enormous amount of investment funding from Dubai it seems that the area could yet again become a real estate hotspot.
Balancing the budget
It is to the enormous credit of the Dubai government that it believes its 2015 budget will be balanced even though spending will increase by 9% year-on-year. This forecast balanced-budget would be the first in six years since the financial crisis and has given many investors food for thought with regards to their real estate investments in Dubai.
One of the main problems with the Dubai market back in 2008/9 was the fact that the authorities were relatively inexperienced in controlling the supply and demand of finance. In many ways they were behind the curve for many months and ultimately this led to a collapse in the Dubai financial sector which then decimated the real estate market. Even though these issues were prompted by the worldwide economic downturn many experts believe that the Dubai authorities were negligent at worst and naive at best.
Controlling the real estate market
Since the harsh lessons of 2008/9 the Dubai authorities have introduced far stricter lending regulations and have shown themselves to be more proactive in this area than ever before. Indeed the doubling of real estate fees will make a massive difference to the budget of Dubai and allow additional investment in infrastructure and other vital areas of everyday life.
There is no doubt that this additional confidence in the Dubai authorities will trickle down to the real estate sector prompting more investment in businesses and attracting more tourists and overseas investors. We can only hope that the authorities continue to learn from issues of years gone by and do not allow the real estate market to dominate and control the local economy.
More realistic investment returns
The recent double-digit returns of the Dubai real estate market had put the area in danger of yet again becoming an uncontrollable hotspot. Thankfully, investors and the authorities in the region seem to have seen sense and actions taken over the last few months have reduced demand and more importantly reduced the squeeze on property prices. The truth is that many investors would prefer a long-term gradual improvement in property prices rather than the volatile and unpredictable patterns of years gone by.
We can only hope that any additional problems regarding the worldwide economy do not push more investors back towards Dubai and create the type of property price squeeze we saw in 2008. The sector seems well positioned for 2015 although the next 12 months could see the biggest test of the Dubai authorities so far.