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Is it the right time to buy a property in Dubai or is it another bubble?
After a devastating crash between 2008 and 2011 that saw property prices plummeting by around 65%, lately the property market in Dubai has rebounded strongly. Consequently, the real estate prices are now booming and have recovered by about a third since reaching a bottom in 2011. This has set most people wondering whether this boom will last or is it another property bubble waiting to burst.To help those desiring to make a well-informed decision with regard to whether this is the right time to purchase a residential unit, MoneyGulf.com did a thorough research and conducted a market analysis of the Dubai real estate sector. Based on this study, we have now come to the conclusion that this is indeed the right time to take the property plunge because of the following reasons:
(1) Most industry analysts and experts believe that the fear about the current boom being just another bubble waiting to burst is totally unfounded because the market this time around has different fundamentals than during the boom-and-bust cycle of 2003-08. This time buyers are more end-users rather than speculators. Furthermore, spending on infrastructure is also at an all-time high as the proactive government subscribes to the belief that a world-class infrastructure will always give Dubai an unparalleled advantage.
(2) Besides being the Middle East business hub and second-richest member of the UAE, Dubai has a very strong chance of getting selected as the host city for World Expo 2020. The result of the bid would be announced in Paris on 27 November. Winning the right to host this global event would prompt another AED 26 billion (US$7.1 billion) of infrastructure projects and the local real estate market will get a major boost, prompting the sellers to raise their property prices.
(3) If Dubai hosts the Expo, then economic growth will receive a 0.5 percentage-point boost per year and about 2 percentage points in 2020, according to Bank of America. Moreover, it will speed up plans for a massive expansion of Dubai’s metro network. A new purpose-built exhibition centre with themed pavilions will also come up in the desert, south of the city. All these will push up the market sentiment and property prices, which in turn could create a boom across economic sectors.
(4) If Dubai fails in its Expo 2020 bid, the market might cool down, but only for a little while before rising again because Dubai is a gateway and an oasis of peace in an inherently unstable region. As such, the negative impact of losing the Expo bid would be temporary. In no way it would affect the fundamentals as Dubai has a solid and diversified economy and the city will still keep growing at a decent pace. The money laws here are also easy. Hence, Dubai’s reputation will remain intact and it will continue to attract investors and expatriates. And land values as well as prices and rents for home will keep on rising as it is happening now.
(5) Industry analysts say property prices in Dubai will continue to rise until a certain price point is reached. This does not mean that prices will never fall again because a fall in prices is an inescapable part of the business cycle. However, it will not happen at least for the next three years because Dubai has 2-3 years left of rising prices before the real estate cycle turns down again. Meanwhile, if Dubai is selected to host Expo 2020, the real estate cycle would not turn down for another five more years. So the risks associated with buying property at this stage of the cycle are significantly low.
(6) Real estate in Dubai is still cheap as compared to equivalent global hubs. It also enjoys the advantage of a visionary leadership that understands the importance of safeguarding the interests of all stakeholders. To protect banks and financial institutions from bad debts and over exposure, it has set up the Al Etihad Credit Bureau. And to expedite the process of settling rent disputes, it has set up a new Rental Dispute Settlement Centre that is planning to enforce a new standard rent contract by 2014 end in a bid to reform the real estate sector.
(7) To prevent speculative activity in the real estate sector and to protect the buyer, this time the UAE government is willing to regulate. Hence, new laws are being put in place. For instance, on 29 October 2013, the UAE Central Bank has issued new mortgage lending rules restricting the loan amount that homebuyers can get from banks and financial institutions. The government is also expected to issue seven new laws within the next two years for regulating the market, monitoring the rent hikes and maintaining property values. So there are reasons to believe that regulators will step in if things get too overheated. Hence, a repeat of the property bubble is unlikely.
Taking into account the above facts, we believe property prices in Dubai are likely to keep rising for some more years to come and there is no need to fear a property bubble. Hence, this is undoubtedly the right time to buy a property because if you wait too long, it will only get more and more expensive.
