Current State of Dubai Property Market

Summary

The Dubai property market grew every year from early 2003 until September 2008. However, from October 2008 to May 2009, over an 8 month period, the market fell by a massive 50% following the ‘credit-crunch’. Since then, and over the past 2 years, prices on ready properties have been relatively stable with only minor changes. What will happen next ...?

Timeline

From January 2003 to July 2007 – Dubai property market grows 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 speculation in the market

From October 2008 to May 2009 – Prices fell by 50% over a short 8 month period, as the market corrected itself following the credit crunch. Many off-plan developments put on hold or cancelled.

From June 2009 to current timeframe the market for ready built properties was fairly stable. Off-plan apartments continued to lose value as customers realised that these may be severely delayed or never built.

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 will now slowly rise, as more off-plan properties are likely to be cancelled, resulting in shortages of ready properties in the future.

In the past, 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 7 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. The forecast is now for a steady increase in ready property prices due to likely shortages. This is shown as yellow circles in the graph below.

Confidence – Difference between DUBAI and UAE

Dubai is a state, part of the UAE just like California (another state having financial concerns) is part of the USA.

The UAE is the world's third largest exporter of oil and one of the richest countries in the world with one of its surplus funds being over $700 billion. Most of this wealth lies in the state of Abu Dhabi which accounts for around 90% of UAE by land and over 98% by oil production. Many of the Dubai assets are already owned by sheikhs in Abu Dhabi. The country is UAE – not Dubai and UAE is not in any financial difficulties. The UK or other European Countries are more likely to go bankrupt than the UAE. However, confidence in Dubai itself is at an all-time low and many see this as a good reason to buy property right now.

Likely Future Effects

• Many of the assets in Dubai (e.g. Dubai World, Nakheel etc) will eventually be owned by companies whose investors are in in Abu Dhabi (rather than in Dubai). The Burj Dubai (world’s tallest building) has already been renamed as Burj Khalifa after the name of the ruler of Abu Dhabi who is also President of UAE.
• Dubai will not become bankrupt (the source of funding and ownership of many Dubai owned companies may change).
• There may be cut backs on funding and lending to developers in the future (from all sources) and further regulation to prevent an off-plan boom – thus a massive reduction in future property construction.
• As Dubai economy is still growing, with net growth in population, even with the current recession in construction, this will result in property shortages – not excess. Our overall forecast is that property prices are at rock bottom (having fallen over 50% in most areas since October 2008) and will slowly increase over next few years.

What does it mean for you?

1. Owners of Ready Properties or Nearly Ready Properties

If you own a ready property, then keep your property. Do not be panicked into selling at a distress price. Overall there are likely to be shortages of ready properties as many future planned projects will be cancelled or severely delayed. Rent out now (rents are about 9% of current property value per year in the right areas; as property prices have fallen, so have rents). Sell at end of next year if you must sell.

How to estimate your property value

Use the property index to estimate your current property price. Follow these 4 steps.

• What was the property index when you purchased your property (Example: if purchased in Jan 08 it was 420; look at the graph above)
• What was your original property price (Example e.g. AED 800,000 original price in Jan 2008)
• What is current index – (Example January 2011 index is around 280; look at graph above)
• Calculate current price (Example 800,000 TIMES 280 . Then DIVIDE by 420). Answer is AED 533,000
• To work out current rental value – multiply current property price by 9%. Thus current market rental for example property which is now worth AED 533,000 would be AED 48,000 per year.
• In the example above a property purchased for AED 800,000 in January 2008 is worth AED 533,000 in January 2010. This is only an estimate. You can use the above information to estimate your property price. The current market rent for such a property would be 9% of the property value per year.

2. Off-Plan Owners – not started construction

This means that your building is even less likely to start construction and is more likely to be cancelled. If it is cancelled, you may get some of your money back. Do not make any further payments unless you have a good construction linked payment plan and your building has definitely started construction and is making progress– Get pictures or visit the site yourself. If you have only paid a small amount (e.g. less than 40%), it may still be worth cancelling and not paying anymore, even if construction is on schedule. The reason for this is that your property may have fallen by over 50% in value since you purchased it (assuming this was around early 2008) – It depends on when exactly you purchased.

3. Possibly Looking To Buy - New Buyers

Only buy properties that are ready. Do not buy off-plan properties even if discounted, as these are unlikely to start construction in the next few years. Most will be cancelled. If you are considering a ready or ‘nearly ready’ property, then now is a good time to buy, at a good price, as we forecast a shortage of ready properties over the next few years. However to reduce your risk further buy multiple smaller properties e.g. Studios or 1-bed as the rental yields are greater.

All the properties on our website are ‘ready’ properties

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