When we look back at the 2008 US mortgage market crash, which proceeded one of the worst worldwide recessions in living history, the Dubai market will likely be the focus of many thoughts. This is a real estate market which appeared from nowhere just a decade earlier to become one of the most sought after at the time. We saw prices rising to dizzy heights, we saw investors hoping on board afraid they were going to miss out and then ultimately came the realisation that the market was not immune to the worldwide economic downturn.
Many investors lost their shirts during this dramatic turnaround and while there is still work to be done it looks as though the Dubai real estate market is going through something of a transitional period reminiscent of a maturing market.
Over the last couple of years the performance of the Dubai market has been mixed to say the least and indeed the first quarter of 2015 saw a reduced rate of growth compared to the previous year. There are many factors to take into consideration when looking at the performance of Dubai property which include government measures to safeguard the banking system, the strong dollar, as well as the Russian crisis, an area of the world which had been investing heavily in Dubai real estate.
If you also take into account the under pressure oil price, the seed of much wealth in the area, the ever-growing Eurozone crisis and a downbeat IMF report on the worldwide economy, it is not difficult to see why investors have taken their foot off the accelerator. What can we expect next?
Increased growth from 2016 onwards
Many experts believe that the end of 2015 will herald a new phase in the long-term growth of the Dubai real estate sector. This is an area of the world which is now delivering rental yields between 5% and 7% per annum and many of the short-term “flipper” investors have moved on. While every market needs short-term traders to remain liquid there is no doubt that Dubai attracted more than its fair share of speculators which often led to sharp swings in property prices.
It seems as though long-term investors are happy to see previous price over inflation working its way through the system, bringing valuations back to a more acceptable level. There has also been intense speculation over the number of “new developments” in Dubai and initial estimates of a further 25,000 new units appear to be well in excess of real levels. It is believed the real level is anywhere between 12,500 and 20,000 which has to a certain extent allayed fears of oversupply.
The history of the Dubai property market will prove a useful education tool in years to come having risen from nowhere to become the “must have” property market prior to the 2008 worldwide economic crash. The Dubai authorities came in for significant criticism due to lax regulations although progress has been made in this area of late. Incidentally, it is this progress in tightening regulations which has prompted the transition from a fledgling to a more mature real estate market.
It is interesting to see many experts talking of long-term investors and the flight of so-called “flippers” who were very much in evidence just prior to and just after the worldwide economic downturn began. Will we ever return to the heady days prior to the 2008 US mortgage sector collapse?