Drastic correction in Dubai property market unlikely
84% of survey respondents pose confidence in emirate's realty.
Dubai: A drastic property market correction in Dubai is unlikely, according to a marketplace intelligence survey by London Business School.
The survey, conducted with more than 200 business executives to analyse Dubai’s booming residential property market and the possibility of another real estate ‘bubble,’ revealed that 84 per cent of respondents did not believe Dubai property prices would plunge in the same way they did in the 2008-9 market correction.
Joao Cocco, professor of finance, London Business School, said the vast majority of executives surveyed do not believe that there will be a drastic decline in residential real estate prices in Dubai over the next 12 months. Only three per cent of those surveyed expect an annual decline larger than 20 per cent.
Standard & Poor’s Ratings Services believes that the impending correction in the wake of additional supply and lesser demand would result in a moderate 10 per cent to 20 per cent correction in Dubai’s residential real estate prices, but would be “nothing on the order that led to the crisis in 2009.”
Property experts at Cluttons argue that new real estate regulations in the UAE, which were aimed at curbing speculative activity, have helped ward off a possible overheating of Dubai’s property market.
The London Business School survey found that despite speculation from real estate analysts across the UAE and the wider region about soaring property prices and the risk of another speculative property bubble, almost half (47 per cent) of respondents would invest in the Dubai property market.
More than a third cited a strong economic outlook for Dubai as their main reason for investing. Other reasons included high rental yields for Dubai properties and personal reasons, including the high quality of life in the UAE and preferring to purchase instead of renting. More than a third (44 per cent) of the respondents, who included alumni, current executive MBAs and past participants of the school’s Executive Education programmes, said greater restrictions on real estate supply would most effectively limit market speculation and prevent a future real estate bubble. Tighter eligibility for home finance loans would also help said 18 per cent of those surveyed.
“Roughly half of the executives surveyed recognise the risk that the supply of new properties will increase at a faster rate than the demand, leading to a situation of over-supply and a decline in real estate prices, and favour greater restrictions on construction as a way to mitigate this risk,” said Cocco.
Business executives were divided on the question of whether property prices would move upward or downward, with just over 50 per cent saying they will decrease, and 49.75 per cent saying prices will remain stable or increase. More than two thirds (68 per cent) of respondents predicted that Dubai’s residential market will not continue to grow at the same rate as it has thus far. Just over half (51.5 per cent) of the respondents thought that any losses or gains in the Dubai property market will be within 10 per cent of their current value, with 31 per cent stating the market will decrease by less than 10 per cent and 20.5 per cent predicting an increase of less than 10 per cent.
“It is reassuring to see that more than two thirds of respondents do not believe that property prices will keep on increasing at the same rate in the future. Unrealistically high expectations of future house price growth have in the past been a source of booms in the housing market, only to turn into bust when expectations change,” said Cocco.
Respondents also felt the commercial property market would remain relatively stable, with almost 64 per cent of respondents saying any increases or decreases in prices would be less than 10 per cent. “Respondents’ views of the evolution of residential and commercial property price movements over the next year were fairly similar,” said Cocco.
A recent report by Knight Frank’s Global House Prices Index has shown that Dubai was one of the worst-performing housing markets in the first quarter of 2015. According to the new research, Dubai ranked 53rd out of the 56 locations monitored — one place lower than Greece, but higher than China, Cyprus and Ukraine. The report revealed property prices in Dubai fell by 6.1 per cent over a 12-month period, and were 3.7 per cent lower than the previous quarter.
Dubai suffered a correction in 2008 when property prices dropped by more than 50 per cent. But according to the business executives surveyed by London Business School, a drastic market correction this time around is unlikely.