Uncertainty at all-time high
As property prices continue to go up, experts are divided on what the future has in store for Dubai - another property bubble or a buoyant market, supported by increased regulations and greater awareness.
Prices may hit their 2008 peak by the end of this year, heightening fears that another bubble is set to strike. Average real estate prices have enjoyed their highest growth spurt, reaching levels of 22% last year and may grow between 10-15% this year, according to a report from real estate consultancy Jones Lang LaSalle (JLL). Average prices are currently 15% below their 2008 level, which was achieved shortly before prices crashed by as much as 60% in the emirate.
According to JLL, however, 2014 will not be the year that a second UAE bubble bursts, but it warned that a correction could be looming in the longer term if both house prices and rents continue to grow at unsustainable levels. It predicted that rents in Dubai are set to increase by another 10 to 20% over the year.
According to Craig Plumb, head of residential at JLL Dubai, "We don't think [price correction] will come in 2014 but we do thing that it could come longer term, and if so, it will be caused by one of four key factors: either an external factor which is financial or geopolitical. Or it could be that continued price growth finally makes the UAE a less attractive place for expatriates to live. Or the final factor could be that resource constraints for either people or materials lead to problems with construction keeping up with demand. In our view, the last of these is the most likely."
JLL's report of the market's top trends points out that the industry is "smarter" this time around because investors are more cautious, regulations are better and property development is changing, with larger projects being phased in line with demand, less reliance on pre-sales and sub-developers and significant levels of new supply being provided.
Market Insight is aimed at examining the emirate's dynamic market and forecasting industry trends. The realty sector is set to witness a series of changes with mounting pressure on lifting foreign ownership limits and prices rising at an unsustainable level. New developments continue to be announced, whether it be through new market entrants or major players like Dubai Investments. We will be following up on reports of where the market is headed towards and what measures are being taken to prevent another bubble and will be sure to keep our readers up-to-date.