Property prices and rents are matching the heights of the city's skyscrapers and inflation has hit new highs.
There's only one way that Dubai real estate is going — up. People are pursuing property with a zeal similar to the boom years. Developers are bringing on one new project after another. Property prices and rents are matching the heights of the city's skyscrapers and inflation has hit new highs. Not surprisingly then, the thought of a lurking bubble is on people's minds. Recently, we looked at six reasons why some people don't see a bubble looming. This week, I look at six reasons why some may see a bubble beckoning.
1. The IMF warns on a real estate bubble: The International Monetary Fund has warned that Dubai might need stronger tools to control real estate speculation. The report recommended further increase in real estate fees and other steps to further regulate the market. Recently, the UAE Central Bank also pointed out that rental yields in Dubai and Abu Dhabi could indicate growing overheating in the UAE's real estate sector.
2. The comeback of the off-plan market: We've seen many off-plan projects such as Mulberry Park Heights at Mohammed bin Rashid City and Atria in Business Bay come in this year. Off-plan villa launches include Yasmin at Arabian Ranches and Mira Oasis at Reem. Sure, we've had important regulations kick in to cool the market and curb flipping — a key one being the doubling of fees on property transactions to four per cent. Aldar Properties has prohibited investors from reselling their units before paying 50 per cent of the property's price. In an ideal world, we could say that flipping should be stopped. But we don't live in one, so what we can do is control it. We can all agree that curbing artificial price increases is key; this is why if any further regulation is to come in this year or the next, I hope that it's within the off-plan market.
3. 30 per cent jump in property prices: Going by 2014 first-quarter estimates, home prices have soared by over 30 per cent in comparison to the same quarter last year. Experts have reported this upside to be one of the biggest price jumps amongst global real estate markets.
4. 14 per cent rise in rents in 2013: Leasing price increases have put renting out of reach for many residents. Prime rents in Dubai rose by almost 14 per cent last year. Priced out of their apartments, many people have relocated to Sharjah. Not surprisingly then, Sharjah rents have jumped seven per cent in the first quarter of 2014 compared to the fourth quarter of 2013.
5. Property prices are returning to their 2008 peak: In some areas, house prices are back to 2008 peak levels. If prices continue to grow at the rate they have been, we could be back to 2007 levels by the end of the year or early 2015. Even with the economy estimated to grow by 4.7 per cent and the population rising by five per cent last year, house prices are accelerating way too quickly.
6. 90,000 new units in Dubai by 2018: 40,000 units are expected to be delivered this year. Will the new properties be absorbed by the growing population? Or is the market at a risk for oversupply?
Surely, the nuts and bolts holding the economy together are strong. However, are they robust enough to carry price increases without causing overheating of the market? Despite more people moving to Dubai, what's really pushing the price growth is investment demand, not the resident population itself. That is, people are looking to buy an apartment or villa not necessarily to live in, but more as an investment or a second home.
The government recognises the importance of making Dubai an affordable city, not just for residents and investors but also for businesses looking to move and set up operations here. High property prices could make Dubai less competitive than other emerging business hubs in the region, such as Qatar. Hence, it's in everybody's interest to control anything that may trigger a pop.
So, just how far are we really from the highs of 2008? Is it hard times in paradise? Or, is Dubai ready for a smarter boom this time?
The writer is the chief executive officer and founder of propertyfinder.ae. Views expressed by the author are his own and do not reflect the newspaper's policy.