A flight to quality and location, location, location

It is hard to gauge exactly why sales in the Dubai secondary market have slowed down over the past couple of months. But higher US interest rates, slower global economic growth rates, and competition from the UAE stock market for speculative funds, are mentioned as possible causes in the market place.

Not that Dubai home re-sales have hit the buffers. The hottest locations at present are the Arabian Ranches, Greens, Meadows and Springs; while in the Dubai Marina the Marinascape complex is in demand.

Sales of off-plan property continue at a pace, but there is stronger competition for buyers these days. The Lakepoint tower at the Jumeirah Lake Towers from Lai General trading, for example, which was launched this week, is offering just a 5% down payment and a fixed three-year maintenance fee.

This suggests that developers are having to offer better deals to lure speculators who were queuing up with their cheques earlier in the year. It could also be that the supply of off-plan properties is now finally beginning to exceed demand.

Yet agents reckon this situation may turn around very fast. They are the eternal optimists. But there is a good argument that the speculative money currently going into the sky-high UAE stock market is likely to come out very soon, and will need to find a new home, literally in this case.

It is a phenomenon noted around the world that stock market busts tend to fuel a real estate bubble for the following 12-18 months. This could be the final climatic phase of the Dubai property boom before its own inevitable market correction.

Now buyers sat on the sidelines need to ask: do I want to wait and see prices rise even higher before buying? The danger in the UAE is that most buyers are cash buyers and thus a future downturn in the market will not result in a lot of forced sales. People will simply sit on their property and refuse to sell.

This is what happened in Dubai during the 1999-2000 real estate slow down when landlords preferred to leave apartments vacant for a period rather than take lower rents; and it worked, rents did not fall.

Hence not buying today and waiting for a market crash to correct prices to a lower level is not a formula that will necessarily work in Dubai. The owners may just decide not to sell. And if you live here you do have to carry on paying horrendously high rents in the meantime.