From Chicago to Knightsbridge it is the same story for global property. Higher interest rates are undermining buyer confidence and depressing prices. But does this market reality have any relevance to Dubai?
A rapid succession of interest rates in the US and UK is taking its toll on real estate.
First, property sales slowed markedly and then sellers started to become 'more realistic' in their expectations. If some analysts are proved correct then the present level of over-valuation could lead to a very sharp market downturn, particularly if interest rates continue to rise.
However, assets in the Middle East are famous for their 'negative correlation' to those in the Western countries. In short when oil prices are up, Western markets are down, and vice-versa.
On this reckoning, selling out of US or UK property and buying into Dubai would seem a prudent move. There is one caveat here: Dubai property is still rising to global levels, but what if global property prices start to slide back towards Dubai levels?
Clearly the perceived value of Dubai property would then be lower than it is today when the market is chasing far more expensive global markets. For example, if an apartment in the Jumeirah Beach Residence is now half the price of a flat in Knightsbridge, it is a far more attractive proposition than if it is just 20% cheaper due to a UK housing slump.
Moreover, the foreign property buyers who have fuelled the Dubai property boom may start to feel the pinch. If the value of their assets in the US or UK is falling, then they will be less able to finance property acquisitions in Dubai.
In Spain it has long been noted that the UK property cycle has a pronounced effect on house prices in areas favoured by the many UK expatriates. So at the very least it could be anticipated that a slowdown in the US and UK housing markets could take the shine of Dubai property prices.
Indeed, the Dubai property market is not 'negative correlated' in terms of the cost of finance, as the UAE currency is linked to the dollar and so are its interest rates. Thus overtime the higher US cost of borrowing will impact on the cost of mortgages in Dubai.
On the other hand, speculators and cash buyers with nothing else to do with their money will probably continue to pour cash into Dubai like there is no tomorrow for some time to come, and this momentum will keep prices rising.
But if you are looking at fundamental shifts in the real estate investment market then a downturn in the West is a major development and will probably mark a decisive point in the development of the Dubai property market, and could put a lower ceiling on prices than some presently anticipate.