Does Dubai property face a Singapore or Hong Kong style correction?
EFG-Hermes is the Arab world’s premier investment banking firm and the market leader in securities brokerage, asset management, investment banking, private equity and research. EFG Hermes has produced an excellent report on Dubai property published Dec 2006 concluded that 2007 would be a year of transition in the Dubai property market with a downturn thereafter. It highlighted the pattern of gentle decline seen in Singapore from 2000-2003 as the most likely future scenario, but Hong Kong offers another model. EFG-Hermes points to 2008 as crunch time for Dubai property investment in their 45-page analysis of the Dubai real estate market with a new assessment of supply and demand. Dubai only has an ongoing demand for between 40,000 and 50,000 (at most) residential units per year, says this study and 69,000 units are to be delivered in 2007. So 2008 could be the real problem, with an excess of (40,000) residential units. So off plan investors beware! Those of you that bought early in the Dubai property market probably made a very good investment, and the doom merchants missed the opportunity of a lifetime! But that does not mean that late-comers will enjoy the same success, or that early winners who are now loading up on property again will be a Dubai property winner for a second time. Note the cranes on the sky-line!
The high cost of local mortgages in Dubai leaves room for lower rates to follow that could sustain Dubai property prices even in a market downturn. For as this start-up real estate market moves to greater maturity the mortgage sector is the key to reaching international real estate price levels and sustaining them. Plus with a Dubai Government 7% rent cap investors should be taking note of this realism check for 2007. The announcement of a seven per cent cap on rental increases in Dubai during 2007, and a ban on any rise at all on new rentals taken in 2006, was greeted enthusiastically by tenants. However, it is not such good news for landlords, investors and developers who will have to work harder to make their business plans stand up.
This article is personal common sense opinion and you should seek professional advice before investing in any property home or abroad.