Dubai Property Market Bubble

Jones Lang LaSalle predicts that residential real estate prices in Dubai may be inflated and positioned for a fall by the year 2015. Experts believe that the emerging …

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Jones Lang LaSalle predicts that residential real estate prices in Dubai may be inflated and positioned for a fall by the year 2015. Experts believe that the emerging property market, which has been booming as of late, will likely not be able to sustain its current growth. Residential property prices jumped 22% over the last year and continue to climb at a pace that must end at some point. Given that newer real estate markets have shorter peaks and troughs and that much of the growth has been driven by speculative buying, the forecast places the end of this most recent peak within two years. For more on this continue reading the following article from Property Wire.

With property prices rising steadily in Dubai, some experts are voicing opinions that another real estate slump is inevitable by 2015 because current values are not sustainable.

They point out that as the Dubai market is still an emerging real estate market it is likely to experience more shorter peaks and troughs than more mature markets.

Residential house prices have increased by more than 22% over the last 12 months and are increasing at an unsustainable rate and may see correction over the next year, according to a report by property consultancy Jones Lang LaSalle.

It suggests that billions of dollars of government real estate projects have triggered a buying frenzy and stock market bull run that has caused concern globally with the International Monetary Fund expressing concerns.

‘The rate of increases seen over the past year is indeed unsustainable. While residential prices and rents will continue to increase over the next 12 months, the rate of increase will decline somewhat,’ the report says.

It points out that the increase has been driven by speculative buying, the same scenario that led to soaring prices before the crash of 2008 and such rates of increase cannot be supported by the fundamentals alone.

Faris Mansour, director of Mubadala Pramerica Real Estate Investors, told the annual Cityscape property fair that Dubai’s property sector will hit another slump in 18 to 24 months.

‘There is no reason why as an emerging market we should expect there to be 10 year real estate cycles. Emerging markets move in short, sharp cycles reflecting the movement of capital, as proven over the years around the world. We should expect that to happen here as well,’ he explained.

‘And that’s not to say it will fall necessarily as it did before. But it will fall, it will correct and this is something we should all expect to happen and I expect it to happen in the next 18 to 24 month as capital becomes more expensive globally,’ he said.

‘The massive use of capital at emerging markets will eventually raise the cost of capital over time. That cost of capital will have a direct effect on real estate,’ he added.

Robert Lee, chief executive officer of Bahrain Bay said higher property price increases were happening in markets such as Sydney, Hong Kong and Shanghai and Dubai was simply benefiting from a global phenomenon but a correction would come.

‘This is where we are and I think in the next year or two we’ll see a definite correction in prices. Real estate, with all due respect, is a cycle business,’ he added.

But not everyone believes that speculation is rife. Miguel Guadalupe, chief operating officer at Pacific Ventures, which entered the Dubai market after the slump of 2008, said it was seeing end users rather than flippers.

He said feedback, including from other developers, was that they were not merely property investors but families who wanted to live in Dubai.

Jammal Hammoud, chief executive officer of Milestone Capital US, also believes the current level of price rises will not continue and put the situation down to a glitch  in supply over the past four years.

However, Tariq Ramadan, chairman of the UAE’s Tharaa Holding, believes the property market was definitely in recovery mode with prices at 2007 to 2008 levels. ‘In my opinion these are sustainable prices. Everything is picking up in Dubai and that’s driving sustainable growth and demand,’ he said.

He added that he thinks speculative buyers existed for about 10 projects under Damac and Emaar. This compared to 200 projects between 2006 and 2008 when speculators were very active.

This article was republished with permission from Property Wire.

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