Burj Dubai Area 1

Dubai Property Price Crash – Are we at rock-bottom yet?

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.

6 thoughts on “Dubai Property Price Crash – Are we at rock-bottom yet?”

  1. There is no way Dubai can ever recover from this. Prices are still going down and everyone is leaving Dubai. Your customers should sell up at whatever price they can and leave too.

  2. We agree that the current state of affairs is very difficult, particularly for customers who have purchased off-plan property from developers and have paid anything from 10% to 40% for their property. However, practically they cannot re-sell as there are no buyers for such properties. Providing the developers build these properties, customers may be ok in the long run. However, we have seen that prices for ready properties are no longer falling and there is good rental demand. The shortage of ready properties will halt the price decline and eventually lead to price increases in 2 to 3 years. So we do think Dubai will recover from this – but it has been very painful for all.

  3. I purchased a property from Rockland in Ajman in June 2008 – on Openshore’s advice. I accept you have been keeping us updated (with the bad news) but you have not managed to get us a refund from the developer. I understand it is not your fault but please can you try harder.

  4. Unfortunately there seem to be thousands of customers who have purchased from hundreds of developers in Ajman, Dubai and RAK in similar situations. Funds have been taken from customers for development but no construction has started or it has stopped. Whilst there have been instances of fraud and blatant lying, most developers seem to have been incompetent and have been caught by the financial crisis. Many developers are claiming that fund they had have been used for the plot and land payments to Government and that they do not have sufficient funds to start construction as customer payments have stopped coming.
    We are exploring a number of options including legal action against developers and switch to alternative properties and will keep you updated. There are limits on what we can do on your behalf as Estate Agents. Legal action in UAE is very slow and expensive and where this has happened, refunds have not been achieved.

  5. We have stopped recommending or selling any off-plan property in Dubai or Ajman. We only advice customers purchase “ready” or nearly ready property. Prices on ready property are now very low. We sincerely believe that customers who purchase ready property now at these low prices will do very well in 3 to 5 years time as we do expect prices to increase again in Dubai. When this starts to happen we think prices will rise rapidly towards the peak 2008 levels. However, no-one can be certain of what will happen in the future. Our view is that ready Dubai property at these low prices is a good investment.

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