The many announcements of new massive property projects in recent weeks seem at least partly designed to put a ceiling on booming rental and capital values in Dubai. But is the promise of new supply in the future going to affect supply and demand today?
The Dubai Government seems to have been pulling out all the stops to keep the local property boom from getting out of hand.
A slew of major project announcements – from the Dubai Waterfront mini-city near Jebel Ali to the 250-tower Dubai Business Bay in the downtown – appear to be aimed at keeping the market well supplied and therefore to prevent rentals and capital values going too high.
The last thing Dubai wants to become is an expensive place to do business. The emirate grew by being a highly competitive, low-cost business location and would not want to become overpriced like certain Asian markets.
Indeed, there are some signs that price increases are now more muted and that the re-sale market is cooling down. From the rental cost perspective there has been some market resistance to price increases, though often people are accepting smaller accommodation to meet their budget.
However, there is still a time-lag between these massive new developments and the demand for property. The supply is coming tomorrow. The demand is there today.
With this supply and demand position it is impossible not to conclude that the cost of buying property and the cost of rentals will both continue to rise at least until this new supply begins to become available.
Of course, by then the demand for property may be bigger again, and the whole supply/demand equation will have shifted in the direction of permanently higher prices.
This has already happened. Some top local estate agents thought the Jumeirah Beach Residence project might flood the market with apartments, but few hold that view today and prices for the original buyers are three times what they paid. Now the argument has shifted to the tertiary tower developers. But will that be proven wrong too?
Eventually the supply and demand position in Dubai will top out, and then the market will undergo a correction. But with rental and capital values rising at the same time, as they are currently there is nothing immediate to worry about.
Only when rental yields collapse, as the have done in the UK over the past few years, should buyers start to become concerned. We are just not there yet!