Dubai Real Estate Market Enters a Self-Correction Phase

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The property market in Dubai will remain active in 2014, with a price rise of 10 to 15 percent, according to most analysts. And while the year began with soaring prices for residential and commercial estate, the market is now entering a self-correction phase, driven by the Dubai Airport 80-day runway closure and the traditionally slow for business summer season in addition to the upcoming of Ramadan.

Global banks ruled out a price correction this year, claiming the new residential supply will be easily absorbed by the increasing demand, fueled by the growth of population and the expectations for World Expo 2020. However, it seems Dubai property market is already entering a phase of self-correction, influenced by several factors. Such correction was expected by most industry experts, who saw the market growth partially as a result of speculations, the availability of cheap lending and the strong desire of market participants for fast profits.

Nowadays, however, property brokers notice downwards corrections not only on the resale prices, but also on the rentals. Tenants rejoice! During the past couple of weeks, popular properties in central locations and high-end estates have already experienced 10 to 20% price haircuts on average. This may be surprising for international experts, but the slowdown is caused by several local factors. The summer months in Dubai are the hottest, with temperatures officially reaching 50 degrees Celsius. In terms of business activity, tourism and retail, this is traditionally a slow season. The Ramadan in combination with summer breaks and school holidays has a negative impact on the entire economy, including the real estate market, which cannot be merely separated from the rest of the sectors.

The other contributing factor for the lowering property prices is the Dubai Airport runway closure from 1st May, which will have a deeper impact than initially expected. For 80 days, the two runways of the airport will be closed for refurbishing and construction work. Dubai Airports already confirmed a reduction of the number of flights by 26 percent, which will affect a huge part of the flights. Many of them will be transferred to the newly opened Al Maktoum International Airport, many of them will experience delays, and come of the flights might even be cancelled. Besides a mere inconvenience for passengers and loss of revenue for airlines, the runway closure will contribute to the reduction of consumers inflow. While last year the airport was the second busiest airport for international passengers, only after London’s Heathrow, in Q1 Dubai Airports’ data showed that it now occupies the top spot with over 2 million passengers more than Heathrow. Logically, the economic slowdown will be significant and will include all sectors. Again, the real estate market cannot be considered a separate one.

The high-end residential properties are already witnessing price reduction and brokers are expecting this phase of mild self-correction to continue through August. Certain properties’ prices will most likely experience even bigger cuts until July. Tenants will benefit as the unrealistically high rents have driven many to relocate and to accept living in homes they do not like and which are not convenient for them.

Industry experts believe that the correction should be viewed as a healthy step into regulating and balancing the property prices in Dubai. This is especially important to normalize the market, which boomed in the past two years but overheated recently as a result of the Dubai’s winning the bid for hosting Expo 2020 and the abolishment of the rent cap.

On the other hand, investors and end-users could benefit from the market slowdown if they choose properties wisely. This will be a relatively short-term, yet good opportunity for investors to purchase discounted properties, especially in central and size-limited locations, as their value will multiply in several years. Tenants can also find better offers during the summer months, so they should grab the opportunity and search through the property listings for discounted offers. In both cases, our advice is: Bargain as hard and as ruthless as you can!

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