Despite Dubai’s position as a center of a region undergoing massive change, the successful World Expo 2020 bid has raised concerns that cost of living in the city is becoming too high. Regional instability combined with rapid development has also led to one of the world’s most volatile property markets.
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Already a magnet for the super-rich, real estate prices are now underpinned by Syrian, Egyptian and other African investors sitting out political troubles at home. According to property analysts, prices have surged somewhere between 20% to 30% since the last year. Rents in many neighborhoods are up by 40% and even more. Such observations were reported before the 27th of November. Since then, rentals in some areas jumped even higher.
Dubai estimates its successful Expo 2020 bid will generate US$23 billion, or 24% of the city’s GDP, between 2015 and 2021. Of course, at this stage all of these estimates are approximate and relatively reliable, but can serve as an indicator for positive growth and development in the coming years.
However, with memories still fresh of the real estate market bust in 2008 when property prices were slashed by over 60%, some industry insiders fear that another massive correction is on the way. This is not surprising at all, as Dubai’s property prices rose during the past two years mainly on the back of cheap lending and flourishing speculative trading. Mortgage interest rates remain low and many newcomers with a little or no knowledge of the past property bubble are rushing to buy homes for their families or as an investment. However, most of them have too high expectations based on the current already elevated prices, without having into consideration the enormous number of residential units that entered the market since 2008.
Now, some property analysts believe that the Dubai property market should brace for another fall in the coming months until 2015. Investment capital, or as some prefer to name it “hot money” is not reliable and it can quickly shift directions. At present, the developed economies show stronger signs of recovery, with the U.S. and the EU-member countries looking particularly promising to large scale investors.
It is very much likely a correction of about 30% to occur in the coming months, some real estate analysts think. The more optimistic of them estimate the possible correction somewhere around 15%. However, such occurrences are not easy to predict.
At present, it is not possible to explain why property prices and rents keep rising when a large number of units in the city remain unoccupied. There is also a massive new supply scheduled for release until the end of 2015, according to Jones Lang LaSalle most recent report.
Despite a number of warnings by the IMF, high ranking officials and foreign media observers, many investors believe the successful Expo 2020 bid will underpin property prices right away. As a matter of fact, since the day the result was announced, a large number of properties flooded the market with 20% and even 30% higher prices.
In October, Emaar’s chairman Mr. Mohamed Alabbar has warned that “people are greedy” and this is pretty much the only explanation for the most recent rental prices surge. The majority of rental values in Dubai’s prime locations jumped overnight after the World Expo 2020 bid win announcement. However, as a matter of fact, alarmingly present are also lower than the pre-Expo win period rental offers, which indicates that some landlords face difficulties renting out luxurious units.
In addition, occupancy rate in particularly in the Downtown Dubai and Business Bay remain somewhere between 30% to 70% on average. Elsewhere, in the newer suburban areas of the city where infrastructure is still under development, complete buildings remain empty.
