Is Dubai property really two distinct markets?
Complex Made Simple

Is Dubai property really two distinct markets?

Is Dubai property really two distinct markets?

So long as the supply of completed property in Dubai falls short of the demand from existing and arriving residents then there will be pressure on rental prices and the cost of homes. At present contractors are falling behind their schedules which delays the onset of new supply, contributing to this supply shortage.

    There is only a very haphazard view of the supply chain as off-plan buyers on particular projects often have flexible delivery dates written into their sale agreements. So it is very hard to predict when the supply of property under construction will catch up with demand.

    Tamweel CEO Adel Al Shirawi presented his group's forecast of 30,000 unit completions in 2007 to the Cityscape conference last week. This appears comfortably ahead of demand with new affluent arrivals in Dubai currently running at around 5,000 households per month according to the immigration authorities.

    However, Dubai property is a tale of two markets: the market for existing completed properties; and the market for off-plan property in developments to be completed at some unclearly defined future date.

    Two property markets

    It is easy to confuse the two but in fact they are very different. Existing completed properties have immediate value to an end-user or offer a rental income. Off-plan property is a capital investment for the buyer whose money is dead until delivery, unless the property can be quickly sold on.

    Talking to developers of new projects at Cityscape – and there were large numbers of them with some huge developments – and the sales patter often ran along the lines of: 'Become an early investor, buy 50 units and then re-sell them two months later at a very good profit'.

    This is speculation of the very worst kind: Buying on the assumption of an ever rising market, with no intention of paying more than a deposit.

    Perhaps then it will be within this off-plan market that weakness emerges first in Dubai property, as the market will surely run out of people willing to buy off-plan sales first and before it is running short of completed property units. This then is where to watch for the much discussed crack in the Dubai property market.

    Saving existing home owners?

    Indeed, might this weakness be the saving of the market for existing property as it will put a cap on new supply while the actual demand for completed units remains strong?

    Moreover, if a speculative correction does not hit the off-plan market we still have the natural forces of construction delays in place with contractors hard to find and building material costs rising to exorbitant levels.

    Consider too that Abu Dhabi is now mobilizing for a huge expansion of its real estate sector, calling on the same scarce human and physical resources and there is reason again to think that many off-plan developers will shortly find themselves in deep trouble.

    Does that mean that Dubai property could rebalance without a crash in prices for existing completed property owners? It just might. Dubai has proven the doubters wrong before.
    AMEinfo Staff

    AMEinfo staff members report business news and views from across the Middle East and North Africa region, and analyse global events impacting the region today.

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