The past 12 months have been worrying for many Dubai property investors. Property prices have fallen by over 50% and many off-plan projects (for which customers have typically paid 10% to 40% on a payment plan) are severely delayed and on hold.
Here is the Timeline
-From January 2003 to July 2007 – Dubai property market grew every year. Property prices increase more than 2.5 fold during this period with average annual increase of over 25%.
-From September 2007 to September 2008, over 12 months, property prices increased by over 40% due to intense demand from investors all over the world. By early 2008, the market spilt over into new areas such as Ajman and Ras-Al-Khaima as Dubai became unaffordable.
-From October 2008 to July 2009 – Prices fell by 50% over a short 9 month period, as the market corrected itself following the credit crunch. Many off-plan developments have been put on hold and some may be cancelled.
What will happen next?
Nobody knows the answer to this but most analysts believe that prices on ready properties are now at ‘rock-bottom’ and could now slowly rise, as more off-plan properties are likely to be cancelled, resulting in shortages of ready properties in the future.
The Dubai property construction boom was funded by the ‘off-plan’ market where customers pre-paid. This gave developers advance funding to build. This ‘off-plan’ market has now collapsed as customers are not prepared to pay for a ‘promise to build’ and many have been let down. We have personal experience of this as we have been in the UAE property market for over many years. Now as there is no such advance funding, developers are no longer able to build.
Thus the building boom in Dubai is now over until prices go up in a significant away again – then confidence could return towards building again. There are many views on what will happen next in Dubai.
Some analysts forecast that now there will be a steady increase in ready property prices due to likely shortages. Others think that prices will remain stable at these low levels for a number of years and then will rise rapidly as confidence returns to Dubai.
A few people have the view that Dubai property market is over and will not return – we do not agree as there are fundamental reasons why Dubai should do well. Once this start to happen, confidence will return and the property prices will start to go up again – however this may take 2 to 3 years. So now may not be a bad time to buy if you can hold the property for the long term.
However – if you are buying, then only consider property that is ready-built or nearly ready as the risks in buying off-plan are too high. Many hundreds of thousands of Dubai investors all over the world remain in limbo. They have typically paid 10% to 40% to developers in Dubai, Ajman, RAK, Abu Dhabi and their projects have been severely delayed or not started.
Many of the developers are claiming that the existing customer payments have been paid to the Government owned master developers and that they have no funds to build, as customers have stopped making payments to them. The UAE regulatory bodies including RERA and ARRA have so far failed to resolve these issues.
Some developers are offering switches to other projects – however, most of these too are on hold. Our advice is that if you are going to switch to another project make sure it is one that is ready or almost complete. Switching to another off-plan may not be beneficial.
So in summary, we do believe that prices are at rock-bottom or near to rock-bottom and that if you want to invest in “ready” Dubai property and are prepared to hold for the long term, then this could bring good returns. At some point in the next 2 to 4 years prices will return to the 2008 peak levels.