Dubai can absorb 25,000 new homes a year

Dubai can absorb 25,000 new homes a year

Dubai can absorb 25,000 new homes a year

While there is much speculation about the short to medium-term outlook for the Dubai real estate market, a report by Citibank has today cast an interesting light on Dubai property. At this moment in time the population of Dubai is rising by 7% per annum and current construction levels equate to 25,000 new properties the year. Citibank believes that the real estate market can absorb 25,000 new properties per year without impacting on current occupancy rates. However, there is a proviso to these figures.

It appears there are a number of “mega-developments” on the horizon in Dubai which could significantly impact the balance of the real estate market. So, what is going on? Is there a real danger of a property price bubble? Are there any similarities to the 2008 Dubai real estate market crash?

Speculators in Dubai

While the annual increase in the Dubai population is matched by the current rate of new properties hitting the market, speculators have pushed prices to perhaps what you might call “unnatural” levels in the short-term. Indeed some properties saw an increase of around 40% in their value during 2013 which is obviously a situation which cannot go on forever. While some may criticise the real estate speculators in Dubai the fact is that speculators and overseas investors often offer the liquidity which is required to run a competitive international real estate sector.

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That said, there is no doubt that the Dubai authorities are concerned about speculative interest in real estate and will do their very best to ensure there is not a repeat of the 2008 crisis. So, how are the Dubai authorities handling the situation at the moment?

Mega-developments in Dubai

In many ways we are seeing parallels with the 2008 property crash in Dubai with international speculators seeing the market as a “done deal” and many still pushing prices to unsustainable levels. Indeed there is also an array of “mega-developments” coming online in the short to medium term which will significantly increase the number of properties across the region. As a consequence, Citibank believes there are ongoing similarities between the current Dubai real estate market and the situation in 2008 just prior to the crash.

There is nothing wrong with flagging a potential repeat of the 2008 situation but it is also worth noting that the Dubai property market is now built on much firmer foundations than its predecessor in 2008. As a consequence some experts are suggesting we could see a price “correction” in either 2015 or 2016 after current pent-up demand begins to wane.

Could we see a repeat of 2008?

As we touched on above, while there are many similarities with the current situation compared to the 2008 Dubai real estate market crash, the foundations are very different. As a consequence, the authorities may well look to squeeze funding supply, attempt to slow the market although it is highly unlikely we will see an implosion in the Dubai property market comparable to the 2008 crisis. Indeed, there is every chance that we will see a correction in the short to medium term but in the medium to long term this is likely to be a healthy development and more of a deflated property price bubble as opposed to a pop!

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