Dubai for Visitors

There’s a simple axiom — what goes up must surely come down? The real-estate sector in Dubai seems to be defying this logic. The news this week that property prices will peak in 2009 and then decline by at least 15 per cent suggests the market is headed for the nirvana of a soft-landing after years of heady increases. Not necessarily so. Steps taken by regulators to dampen demand do not go far enough to deter rampant speculation that can see off-plan units ‘flipped’ several times. This area above all others is the factor driving year-on-year double-digit growth. The dilemma for regulators is not to take any action that sees the market quickly unravel — it is a fine balancing act.

The market has had an extraordinary run since 2002 but the balance between supply and demand is rapidly being addressed with a record number of units set for delivery. The property market fundamentals in Dubai are also quite different from many others. For example a significant number of regional investors see Dubai as a safe haven for investment. On this presumption they frequently buy multiple units that distorts both prices and rents. They may begin to question the notion of safehaven as doubts over the granting of an automatic Residence Visa could not only deter investment but affect re-sale values too.

The changes in the mortgage law satisfactorily regulate the sector.

Taking further action now to slowdown speculation such as preventing investors from selling within the first year of ownership and increasing down payment will benefit the market. Without further reforms the market may be stoking up problems that will be painful at a later date. The worrying point at the moment is the convergence of several bearish factors that threaten medium term stability. The adage ‘buy now, pay later’ never seemed so relevant.