Back in 2008 as the world descended towards an inevitable financial crisis, property in Dubai seemed to be bucking just about every trend it could find. With rampant lending, little government control, and few meaningful valuation methods, the market surged upwards while the rest of the world plummeted. Rental demand grew, investment from around the world poured in, and the Emirate was referred to repeatedly as a "safe haven" amidst the collapse of the global economy.
But were investors just oblivious to the risks involved in this market? More to the point, are they still overlooking the risks of Dubai’s real estate market to this day?
When Boom Turned to Bust
The financial world in 2007/2008, immediately before the crisis hit, was not a pleasant scene for investors. The US mortgage crisis, for one thing, created a lot of problems. Around the world, liquidity began to run low and investors brought their money home from overseas markets in an effort to cover losses. However, even as the other economies fell apart, Dubai seemed to thrive and many people looked there for shelter from the coming storm. So what exactly happened to all those investors who poured money into Dubai while the world was on the brink of a financial crisis?
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Well, when the crisis became a present danger instead of an imminent one, even Dubai’s economy started to run out of steam. Demand for property in the Emirates fell, the banking industry began to suffer and investors had to face the fact that the situation was one that no part of the world could escape forever. As investors tried to flee before the situation fell too far back, prices crashed and seemingly invincible real estate giants began to suffer.
Lessons to Learn
After the crash, Dubai began to recover. The government managed to get on top of the situation with new safeguards, and the confidence that had fled the market crept back in. Though a few problems still remain, Dubai is once again a booming market and very much in the property investment spotlight. Investors are arguably more willing to put their trust in Dubai than before, but we have to ask whether the situation is really so different from 2008? If not, are there lessons that investors need to learn from what happened before?
Pessimistic headlines have recently begun to cloud Dubai’s real estate market, but so far this has not really made a difference to prices. Fortunately, however, signs seem to indicate that the weather is changing and investors are starting to properly appreciate the risk element of Dubai’s risk/reward ratio. Demand and prices alike are rising more slowly than they have been and international buyers are approaching Dubai with different goals in mind.
However, whether this continues for the long-term, and whether lessons have now truly been learned, is something that will only be revealed with the passage of time.