Where next for the Dubai property market?

The Dubai freehold market was born in Spring 2002 when the Dubai Crown Prince General Sheikh Mohammed bin Rashid Al Maktoum famously opened freehold ownership to foreigners.

The first buyers saw the value of their properties double or even treble, attracting scores of speculators into the marketplace. Early speculators really cleaned up, putting down 10% on an apartment and taking the full value of the increase when it doubled in value.

Speculators caught out

But this particular game caught on very quickly, and speculators soon found that the profits grew smaller and smaller; more recently speculators have been getting their fingers burned as re-sale profits have vanished on projects such as the Palm Jumeirah's Golden Mile and apartments in the Burj Dubai, the world's tallest building.

Not surprisingly developers have slowed down the release of new apartment towers in the face of this demand adjustment, and reduced prices on a number of schemes in the Jumeirah Lake Towers in particular.

It is a moot point how many apartments are now in the hands of speculators unable to sell out and end-users who intend to live in them or let them out. But the sale of off-plan property does seem to be at something of a standstill, with the larger apartment units especially difficult to off-load.

Getting back to the phases of a property cycle, the classic pattern is a slow upward start, then a period of manic buying followed by a slowdown and standstill, then the market changes direction and prices begin to head downwards, at first slowly and then with a collapse to a new market bottom from which the next up-cycle can begin.

With a great deal of liquidity in the market - which is keeping the prices of completed homes heading higher even now - it is possible that this period of inertia in the off-plan apartment market could continue for longer than usual in a property market.

A new property law?

The Dubai Government may also shortly publish its long-awaited property law that should support confidence in the market both directly among buyers and indirectly by encouraging the provision of more mortgage finance by the banks whose rights in the case of bad loans should then be clearer; that will create more competition in the mortgage market and lower the cost of borrowing which should be good news for the housing market.

However, the argument for buying still seems strongest for completed property, as the owners immediately benefit from either not paying rent themselves or earning it from tenants. Off-plan property has less certain prospects, and the lengthy construction delays on many projects are an additional cost factor to be borne in mind.

Thus anyone in the market for a high-rise apartment could be forgiven for thinking that the best option might be to wait-and-see when towers are finished. The days of rapid price rises are clearly over, and the supply of apartments coming to completion in the next few years strongly suggests that the risk is to the downside.