Morgan Stanley report today that Dubai has been hit by an over supply problem as more and more projects reach completion while the demand fails to increase proportionally. They also say that in a worst case scenario that the Dubai property market could actually plummet by up to 80% in the same way the Singapore market did in the 1990s. So is the Dubai property market on the verge of collapse?
The first and critically important thing to take on board has been the huge 79% growth in property prices since early 2007. One would naturally expect some form of correction especially in the current world market situation where rational and logic have added a new air of caution to all investment markets.
The reality is possibly more in that Dubai is currently not quite as exciting as it has been over the past 6 years since foreign investors were first granted permission to invest in the UAE property market. However Dubai isn’t just another emerging market blow out that turned out to have no substance, far from. Dubai continues to be one of the most heavily invested countries in the World today with ambitious development plans for the future. Dubai is determined to join the elite club of global cities such as London, Moscow and New York and when you start to compare property prices against these giants even at current rates Dubai still represents very good value.
I personally think there will be a correction, and it ,may well be a knee jerk over reaction, let’s face it everything is correcting now, even the things that possibly didn’t even need a correction, it’s all part of the mass hysteria that seems to be running our global markets, one day we can’t loose the next we can’t win. I imagine that the correction will be short lived, giving time for the continuing growth in Dubai to start to catch up with the sudden glut of supply as many huge projects reach completion. Slowly international property investors will see that they still get a lot more for their money in Dubai than they would in Moscow or London. Many more companies will continue to relocate or at least set up a division in the UAE if for no other reason than to enjoy the enormous tax benefits of trading from one of the free zones.
In summary we don’t think Dubai is going to suffer anywhere as much as Singapore did in the 1990’s but there will be a drop and there will be plenty of press reports announcing the end of the Dubai fairy tale, but Dubai itself is far from packing up. It’s only just getting started.