Last year, about 8 months ago, we told you that the 2nd Dubai Property Boom had started and we were the first company to tell you this.
At the time we expected property prices to rise fairly quickly over the next few years back to peak 2008 levels and then go beyond these before slowing down. This indeed is happening! Prices are now rising every month.
But Will it be another Boom and then Bust? No. This is unlikely for many reasons, although this is a legitimate question. We stick with our previous forecast which shows property prices growing quickly to 2008 levels over the next 2 years.
The main reason for the collapse in property prices in 2008 was that the boom was based on ‘off-plan’ virtual properties that did not exist. These accounted for over 90% of the purchases in the period 2005 to 2008. Prices crashed when investors (who had only paid about 10% to 40%) became concerned about delays and their own financial situation in their own countries and stopped making payments. The developers who were already behind in construction then stopped all-together. This circle and panic led to rapid decrease in prices that also affected ready properties.
The difference is that now, there is real demand, and we are dealing with real ‘ready’ properties – NOT ‘off-plan’ virtual properties. Buyers, now are not considering off-plan properties as the risks are too great for investor – with off-plan the benefits are only for the developer.
Even at the height of the property market in Dubai prices were still significantly lower than many other desirable cities in the world. So, whilst there are other possibilities, the most likely scenario is that prices will continue rise rapidly over the next 12 months, reach the 2008 peak levels and then continue to grow more slowly like other cities in the World. At this point, developers will also work harder to complete their buildings and this will also help to reduce the rate of further price inflation.
So -Why Are Dubai Prices Rising Now?
After massive price falls in Q4 2008 and early 2009, and then 3 years of relative stability- why have prices started to rise again?
Rising Demand There is a real increase in demand for property which is being driven by the rise in populations and tourism.
Population Increasing: In line with general GDP increase (5% GDP) the population is increasing at a similar rate to before the crash.
Tourism Up: Dubai is once again on target to be the world’s leading airport hub.
Safe Haven Status in Middle East: With uncertainty in other areas of the Middle East, Dubai has become an attractive destination for many Arabs. Contrary to popular belief, Dubai actually has insufficient “ready” properties compared with other major cities in the world. The impression many people have is that Dubai is overflowing with ready properties – this is not correct.
Limited Supply of Ready Properties Many projects were cancelled or were stalled after the financial crash. Although many of the stalled projects have now re-started construction, there is still likely to be shortages in the future. Currently developers can NOT get funding upfront from investors or banks – so there are very few new projects being launched. In the past people were willing to buy ‘off-plan’ – this is no longer the case and customers only want to consider ‘ready’ property. Most of the projects under construction or planned are the more expensive mid to high end properties. Thus demand for lower cost property will show a proportionately higher rise. Thus for investment low cost Studio and 1-bed apartments are the best right now.
Return of Confidence in Dubai High GDP: This is now one of the highest in the world and much better than Europe and USA
Infrastructure: Investment into infrastructure has continued and future plans to expand the Metro and Airports are once again on course.
Hub Status: Becoming a Financial centre and Business Hub
Seller Price Rise Awareness This causes what we call ‘positive feedback’. Recently sellers have been selling their properties below their purchase prices and have been losing money. Because sellers know that prices are now rising – they become reluctant to sell. Similarly buyers become keener to buy as they know prices are rising. This results in comparatively fewer sellers and more buyers thus resulting in price rises on a monthly basis.
In summary, the message is that if you have decided not to invest in Dubai – ignore this email. If you are looking to buy a property – from which ever estate agent, then buy it as soon as possible.