Minimum 10 per cent drop in prices expected
Dubais real estate market is set for a subdued period, which will see property prices drop and sentiment fall out of favour with a market that has otherwise been performing well up until the second half of 2014.
Analysts are predicting a minimum 10 per cent drop in property prices this year with many unable to foresee a balancing between supply and demand in the near future.
There is not just one factor dragging down the market, but rather a combination of domestic and foreign dynamics that are causing the slowdown.
Falling oil prices and a stronger dollar serve as the uncontrollable external influences while regulatory stringency and mismatched supply and demand are damaging the market from within.
Dubai is not an oil-dependent economy, but the realities of shrinking federal revenues coupled with investor nervousness that come with volatile energy prices has left many buyers holding back until the oil price situation is clearer. This comes at a time when the dollar is getting stronger, and with the dirham pegged to the US currency, property prices have become more expensive, particularly for foreign investors, some of whom may even be tempted to sell to gain on the currency exchange.
While Dubai has little control over oil prices and currency fluctuations, a slow 2015 is not helped by the oversupply facing the market. Supply is expected to trump demand for the next three years. In addition to this, buyers are increasingly looking towards affordable options rather than the oversupplied luxury segment.
Overall, the market was due a slowdown and analysts have repeatedly said that price inflation was unsustainable. For many in Dubai, which prides itself on being a rapid-growth economy, it will be an unwelcome development. But the reality is it will ensure Dubai continues to be an attractive location for businesses and residents and the emirate does not price itself out of the market, which it would have risked doing if prices had continued on the same trajectory.
Follow Hossam Abougabal on Twitter: @MEEDHossam
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