If we look back to the worldwide economic crisis which began in 2008 we saw a Dubai real estate market which was riding high even in the midst of the worst worldwide economic downturn in living memory. Supporters of the Dubai market suggested it was insulated from the worldwide situation which unfortunately encouraged more buyers to look towards this “safe haven”. However, 2009 saw the beginning of a housing and banking crisis which literally brought Dubai to its knees.
Is there such a thing as a healthy correction?
Over the last seven quarters we have seen successive falls in the value of Dubai property. Depending upon the type of measurement you use this is anywhere between 8% and 15% over the last 18 months. The situation is clearer with regards to prime property which has seen prices fall by 10% between July 2014 and July 2016. The impact of the ongoing contraction of the market does vary between different areas and different types of property but the general direction is clearly downwards. So are we on the verge of another real estate crisis?
It is easy to forget that Dubai property fell by 40% in the first three months of 2009 when the worldwide economic downturn eventually hit home. Vast sums of investment funds were repatriated outside of Dubai, many property investors left with huge debts and the market was in a real mess. So, when you take into account a fall in value over the last 18 months of between 8% and 15% this is not the end of the world.
Blowing the froth off the market
Over the last 18 months or so there have been concerns that property prices in Dubai were not necessarily reflecting both the domestic and the worldwide economic outlook. We await confirmation of how the partial breakup of the European Union will pan out, whether indeed the American economy is back on track and whether the European financial sector is actually over the worst. So, when you consider the situation in light of the worldwide economic outlook this could well be classed as a healthy correction at least in the short term.
Many people fail to realise that the Dubai financial sector you see today is very different to that pre-the 2009 collapse. Anyone acquiring property in Dubai now needs a minimum deposit of 25%, a figure which actually grows for second home investments. Confidence in the Dubai banking sector has been restored in light of regulatory changes and lessons learned from the 2009 collapse. Quite literally Dubai itself was on the verge of defaulting on around $59 billion of debts connected to the property market.
What does the future hold?
Amidst the doom and gloom of worldwide economic troubles it is easy to forget that there is still relatively strong rental demand in Dubai. Yields seem to vary between 4.5% and 6% and in reality recent falls in the price of property have only encouraged more long-term investors to move back into the market. There is still a relatively strong backbone to the Dubai property market and regulations introduced in light of the 2009 collapse have encouraged greater confidence amongst investors.
We may see properties fall further in the short to medium term but those predicting a crash similar to that in 2009 would appear to be well wide of the mark.