Since the rise and fall of the Dubai property market just a few years ago, investors have been treading cautiously amid signs that the Dubai real estate market is gaining momentum. While there was an enormous amount of money made at the turn of the century, as Dubai became a property magnet for investors around the world, many were left high and dry in light of the 2008 US mortgage crisis which spread right across the world. However, the Dubai authorities are now very keen to repair any damage to the regions reputation and are set to bring in an array of investor protection laws for the future.
There is growing concern that while these laws are not overbearing they do in some cases favour property investors and could be seen as a potential incentive to invest in the region, with the limited downside?
Developers held accountable
In the recent boom and bust experienced by the Dubai property market some developers literally disappeared overnight leaving investors nursing heavy losses. While there is no doubt that many of the developers who crashed and burned in financial terms had overstretched themselves there is a growing consensus that limited investor protection at the time played a major part in the decisions taken by some developers.
Quote from PropertyForum.com : “While the US economy continues to take centre stage and the European economy is not too far behind, on the rails we have seen a significant improvement in Dubai property over the last few years which has gone largely unnoticed.”
The leaders of Dubai are adamant that we will not see a repeat of the failing of developers leading to wide scale losses for investors. This has been well received, as you would expect, by investors looking for future exposure to Dubai but could it lead to perhaps greater risk-taking than we have seen in the past?
Risk reward ratio
Aside from the fact that the Dubai authorities are bringing in an array of protection measures for property investors we also have a number of compensation schemes ongoing. The Dubai authorities have decided to honour a number of investor losses due to financial mismanagement by some developers and this could inject a significant amount of funding back into the market. Whether or not you agree with the ongoing compensation schemes there is no doubt that the Dubai authorities are determined to inject long-term confidence into the property market.
It is also worth considering whether improved investor protection could potentially go too far in favour of investors and encourage greater risk taking in the knowledge that a future crash of the Dubai property market could trigger compensation payments. There is no doubt that the Dubai authorities are not looking to encourage overly risky property investment in the region but we will soon see whether they have gone too far with regards to investor protection.
It will be interesting to see whether the ongoing implementation of investor protection laws across Dubai does indeed encourage future investors to take more risk. At this moment in time the market itself is fairly buoyant and while nowhere near the relative highs of 2008, just prior to the crash, there have been some concerns expressed about potential overheating. Thankfully, it does seem as though the Dubai authorities have learned some lessons from the previous property market crash and have already suggested they will limit finance if they see further evidence of “overheating”.
On one hand the authorities are very keen to micromanage the property market, within a free-market framework, but perhaps we will see that investor protection laws currently going through the regulatory process might be biased in favour of investors? The fact is that any investment, whether property, shares, etc does present a degree of risk and obviously the less risk on the downside the more prone investors will be to invest their hard earned money.