Time for greater caution on Dubai real estate

For property moves in cycles and anyone who ignores this fact of life is going to get burned as truly as if they stuck their hand into a fire. Some people say it never rains in the UAE but it did so yesterday.

Readers of this column will recall its bullish comment which lasted until a couple of months ago. Those who took this advice and bought property have generally had a good experience. But nothing lasts forever, and more and more players have entered the Dubai property market creating what can only be described as an investment bubble.

In such circumstances there are two choices for individual investors: sell out before others decide to do so; or take a long term view of the cost of renting as an alternative to owning and stick it out.

Error of optimism

What you should not be doing at or near the top of a real estate cycle is borrowing a lot of money and buying more property, especially if you are doing so by putting down a small deposit thinking that you will always be able to sell out at a profit.

The investors who are going to get really caught out by a reversal of this market - and all history suggests that what goes up just has to come down - are those buying off-plan units on a five per cent or even zero deposit basis from a developer without a good track record.

For in a downturn they will find themselves liable for 100 per cent of a property and at best owning units bought at the highest prices with few potential buyers; and at worse without property at all because the developer has vanished, or has announced an indefinite construction delay.

So any real estate buyer should now be very cautious about how far they stretch their finances, as well as being exceedingly careful with whom they are doing business. Beware of novel ideas from new developers and projects that are self-financing because no bank will touch them.

Bubble, what bubble?

Last week at the 'Leaders in Dubai' the world-respected forecaster Harry S. Dent thought the Dubai property bubble was obvious from even a casual inspection of the skyline.

But such is the enthusiasm of the moment that few people care to acknowledge this simple reflection. They find comfort in the rush of money into this sector, and think that so many investors can not be wrong.

In the real world those that have done well should concentrate on paying down debts and consolidating their holdings into a long term portfolio strategy. And those considering entering the market should recall the recent losses experienced by local stock market investors, also a bullish crowd who argued that this time was different.