A new report by Citibank outlines some of the biggest risks that lie ahead of Dubai’s property market. According to it, there are a number of similarities between the present and the previous real estate boom in the city.
One similarity between Dubai’s last and current property boom is the rise of real estate prices and rent, along the growing number of speculations in the market. In addition, Citibank states that just like in 2008, many large-scale projects are planned for construction in the emirate. Researchers behind the report explain that this is worrying, since six years ago, the same combination of factors led to the crash of the Dubai’s real estate market.
The report does inform that the housing market in the emirate shows stability and a strong performance. However, it also predicts that a price correction would be almost impossible to avoid. Not long ago, JLL also shared similar prognosis. According to the company’s regional office, a price correction might occur in 2014 or 2015.
According to the report, another huge problem on Dubai’s property market is the speculative demand. This practice has made a loud comeback over the last few months. However, Citibank believes that the speculation on the market can have a devastating effect. In its research, the company explains that this could easily encourage and stimulate the start of more mega construction projects. Moreover, the study informs that this can already be seen in many parts of Dubai. According to researchers, the speculation on the market was among the main factors that created the 2008 property bubble in the city. From Citibank explain that if the growing building activity is really linked to the speculative demand, this could result in an unforeseeable crisis in the economy of the emirate.
Still, the predictions are not entirely negative. The report does state that the more the city’s population increases, the more its housing market will grow. Therefore, the extra constructions are said to be easily absorbed without further increasing the already high vacancy rates. Also, analysts have estimated that Dubai can welcome 25,000 new properties on its market without facing a risk of oversupply.
Citi’s report informs that in 2010 vacancy rates in the city amounted to over 450,000 units. However, they have now dropped and currently amount to around 300,000. Researchers are optimistic and expect that this number will continue to decrease, reaching 200,000 over the next 6 years.
Nevertheless, this does not completely eliminate the risk of oversupply. The study reminds that many new large-scale projects are yet to kick off. Among them are, for instance, the Dubai World Central aerotropolis, as well as the massive Mohammed bin Rashid City.
The good news is that the second price correction is not prediction to be as severe as that in 2008. That was mainly due to the fact, that first cycles were always tougher. Still, that is, of course, when people have managed to learn from their mistakes.