On the surface, it appeared that the 2014 edition of Dubai’s annual Cityscape exhibition was much the same as any other year, with glitzy models depicting ambitious real estate ventures that are aiming to transform the emirate into a futuristic metropolis of glass, steel and flashing lights.

While it is easy to assume the pre-2008 exuberance is back with gusto, when speaking to industry heads, it quickly becomes apparent there has been a dramatic change in the dynamics of the market, and this has curtailed the double-digit growth of 2013 and has ushered in a new era of stability.

Developers hope that after 12 years of dizzying heights and catastrophic lows, Dubai’s freehold market has finally matured, offering sensible returns for investors on robust projects in good locations based on the underlying economic fundamentals of supply and demand.

Dubai is back

Dubai has had these hopes before. As prices began to cool in the second and third quarters of 2008, many at that year’s Cityscape said the market was heading for a soft landing as it matured. Subsequent events proved them dramatically wrong. Although those memories remain, the market is confident that this time around, Dubai’s coming of age is the real deal.

“At the end of the day, it is a question of supply and demand,” says Ali Rashid Lootah, chairman of local developer Nakheel. “Dubai is back. You see serious projects now.”

Rather than a global financial meltdown, the change in 2014 has come because speculators, who in the previous boom were buying properties and quickly selling them on for a profit, have left the market following the introduction of new legislation at the end of 2013. While this has slowed demand, it does not mean the market is heading towards a major correction as in 2008 and 2009, when prices halved in six months.

At the end of the day, it is a question of supply and demand. Dubai is back. You see serious projects now

Ali Rashid Lootah, Nakheel

Instead, developers say it means the market is now more accessible for longer-term investors looking to buy a home rather than a commodity to sell on for a profit. “We don’t want flippers anymore; they have been eliminated from the market,” says Lootah. “Serious investors rather than speculators are investing in developments, and I look at that as a positive. It is not in our interests for prices to go up so rapidly.”

The new rules from the central bank came into force at the end of 2013. Unlike before, when buyers required little of their own capital, the regulations cap home loans for local buyers at 80 per cent of the property value and 75 per cent for expatriate buyers. For second homes, mortgages are capped at 65 per cent for nationals and 60 per cent for expatriates. The regulations are even more stringent for offplan sales, with mortgages capped at 50 per cent for everyone, regardless of nationality.

Initially, there were doubts the regulations would have any impact, but nine months later, analysts say the volume of transactions and prices have been affected.

Cooling prices

“Prices have started to level off, but that is down to several things. The key is the regulations that have been introduced; the mortgage cap and the doubling of registration fees are genuinely cooling the market,” says Faisal Durrani, international research and business development manager at the UK’s Cluttons.

“We have seen a 12 per cent drop in the number of transactions when you compare the first half of this year with the first half of 2013.”

Similarly, the US’ JLL reports that property prices have cooled. It says that during the third quarter of this year, average rents grew by just 2 per cent, while sale prices grew by 1 per cent, compared with 3 per cent and 6 per cent in the previous quarter.

The capping of home loans has most affected high-end offplan sales, the traditional bedrock of Dubai’s property market. This is because the deposits needed now are sizeable, meaning that even if investors have the funds available, they are less likely to take the risk with a new developer or on a project in a marginal location.

“The upper end of the market has been particularly hard hit and that is why the number of villa transactions is down by 48 per cent in the first half of this year,” says Durrani. “That is not to say offplan properties are not selling well. Good developers with a proven track record with schemes in good locations are still selling well.”

The fact that developers are still shifting units is undoubtedly reassuring for the market. In August 2008, real estate prices in Dubai were reported to be cooling and many predicted the market was maturing, much as now. What happened instead was the market collapsed in just a few short months as developers were no longer able to sell properties.

This time around developers point to the strong underlying fundamentals, notably GDP growth – which is expected to be 6.1 per cent this year – and an expanding population. “Data from Dubai immigration shows there was a 30 per cent increase in new visas last year,” says Mohammed al-Habbai, chief officer for urban planning and infrastructure at Dubai Properties Group. “The population is growing and that means there is demand for residential [property].”

There are still plenty of good locations that can be built on. Government-controlled developers have significant areas of land to develop in central areas. One of the largest areas to be developed is Nakheel’s Deira Islands (formerly Palm Deira), which comprises reclaimed islands next to the creek and the traditional city centre, Deira.

“Deira is untapped; it is the centre of Dubai, the [central business district], and prices are already very high, so demand is there,” says Lootah. “Good locations still have a good premium.”

Government developers are not the only ones with new projects. As the market has recovered over the past three years, smaller private firms have started launching new schemes. This year at Cityscape, they were out in force and claimed to be doing brisk business.

Once delivered, these projects will substantially increase supply, and if demand remains subdued, then prices could soften further in the future, although that is not expected to happen in 2014.

“As the various new project announcements will have no immediate effect on supply, we expect rents and prices to remain relatively stable over the remainder of 2014, with the market behaving in a more sustainable and healthy manner,” says JLL.

Delicate balance

As the market matures further, these developers will be forced to become more aware of the delicate balance that exists between supply and demand. In the past, rampant demand, buoyed by speculators, allowed developers to launch schemes en mass with scant consideration for the possibility of an oversupplied market. In the future, this will not be possible, meaning subsequent editions of Cityscape may not be packed full of new projects as they have been in the past.

That does not mean the property market is set for a fall. Instead, like other mature markets, it will offer steady returns, albeit with fewer opportunities for major new developments.

“The broader backdrop is still a positive one for Dubai,” says Durrani. “The market is still young when compared with other global cities, it is 12 to 14 years old now, so the fact that government regulation has been able to stabilise growth and there is no longer the volatility we have seen in the past makes it a really attractive investment destination. Creating more stability in the market in terms of more sustainable capital growth of 2-3 per cent a quarter (which is still really good by global standards) makes it a more attractive place to invest.”

If Dubai can successfully make this transition, it will be able to reap the rewards that come from being a mature real estate market. The emirate will be able to attract a new class of buyer seeking long-term investments that consistently grow in value, rather than enduring the peaks and troughs that have so far been synonymous with its property sector.