From being a vehicle to get rich quick, the Dubai property market has matured into a classic long-term savings plan for local residents and nationals. And banks report strong growth in their mortgage business creating a true end-user market. But the days of the speculator are over, at least until the next boom.
Talk to anyone buying Dubai property these days and they are probably thinking about a long-term investment, either as a place to live and avoid paying the high rents of the city, or as a holiday home or as a buy-to-let investment.
The time when speculators could snap up apartments with a 10% deposit, and then sell them a couple of weeks later with a 100% capital gain on their deposit are over. The more typical speculator that you meet today is somebody who can not pass on their apartments without incurring a loss, and has probably decided to go ahead and purchase the property.
As one investment wit once commented: 'The definition of a long-term investment is a short-term one that has gone wrong'. Yet there has always been a crucial difference in the Dubai property market between short-term speculators and the genuine end-user.
Investment time horizon
The difference is in the time horizon. A genuine end-user buys typically with a 10-15 year mortgage. Now everyone knows that within such a long period the real estate market is bound to go up and down. Markets are never flat for long, they rise and fall.
But what does that matter if you have committed to a 10-15 year investment plan? It is only a problem if you have to pull out before the mortgage period is up – otherwise you will just carry on paying the mortgage until the payments are over, and the property becomes yours to live in rent free, or sell as you wish.
This is a very different level of risk to that being taken by the speculator who is in the market for high gains – and if he or she gets it wrong high losses. So those buyers who bought with a short-term time horizon should not grumble if the market has turned against them. That is the risk that they took as speculators.
The only real danger that long-term end-users should worry about is systemic risk. But the UAE has probably the most stable political record of any country in the Middle East, massive hydrocarbon reserves and a history of protecting the interests of expatriate as well as indigenous residents.
Even the mortgage rates paid in the UAE are linked to the US dollar through the currency peg, and so will not move against end users due to shifts in UAE domestic policy. Of course there is no such thing as a risk-free investment but a long-term investment in real estate in an extremely wealthy and stable country does look low-risk.