What makes Dubai's real estate market of today so different from 2008

Unlike 10 years ago when there was a sudden crash, prices have actually been falling for several years

Fortunes have been made by some investors - particularly those that bought in 2006 and sold in 2008, or bought in 2011 and sold in 2014. Antonie Robertson / The National

In September 2008 the first Dubai off-plan property boom came to a sudden stop with the arrival of the global financial crisis.

This proved a double whammy for the local economy that was rescued by a $20 billion emergency package from Abu Dhabi later the following year.

This year a similar, though much smaller and shorter, second boom in off-plan property sales also ended, albeit with a big correction and not a sudden stop.

So, does that leave Dubai residential property about to experience a similar crash in values to that of 2008 when home prices dropped by around 60 per cent? I don’t think so.

What really makes the Dubai real estate market so different now from 2008 is that house prices have actually already been falling for three, almost four years.

In 2008 both the cardiac arrest in the off-plan market, and plummeting prices, struck at the same time. It really has been different this time around, and that makes the recovery prospects very different too.

But don’t let the rash of recent property project launches fool you. The recent downturn in off-plan sales is a matter of public record.

Dubai real estate witnessed a 46 per cent crash in off-plan sales by value in the first quarter, and a 24 per cent decline in previously owned resales, according to data from consultant Reidin-GCP.

The Dubai Land Department also reported a 25 per cent fall in the value of all real estate transactions in the first quarter by comparison to the data that it published a year ago for the same period.

On the other hand, actual Dubai house prices have been quietly slipping in value since at least the summer of 2014. You can pin that on a doubling of sales transaction fees the previous November and a tightening of mortgage lending at the same time, plus the impact of an oil price slump on business in Dubai.

Take a Jumeriah Park three-bed Legacy Large villa. Its value peaked around Dh5.5 million in early 2014 and today would be lucky to fetch Dh4m. That’s quite a fall in value.

However, for anybody who is a student of real estate valuation cycles this is also quite a typical down cycle for any major residential market.

After three to four years you would expect to see prices bottom out, awaiting a catalyst - often a fall in interest rates - to start the recovery in valuations to at least previous peaks. Maybe prices are now on the floor.

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On my last visit to the Dubai Opera, I happened to be seated near my most recent estate agent. I asked him how business was and he replied ‘what business.’ In fact, he had given up trying to sell homes and started a mobile restaurant business.

He added that the boom in off-plan sales last year crowded out sales in the second hand market and put further pressure on prices before itself blowing up as a mini-bubble.

That said it does not seem to have put developers off making launches, and some pretty ambitious ones at that, clearly designed to catch the attention of the diminishing number of buyers.

Majid Al Futtaim’s belated entry into the market early this month, Tilal Al Ghaf, a 6,500 villa project including a swimmable lake with 400-metre beachfront for residents caught my eye. Shades of the 2008 boom indeed. I recall the Cityscape property show of that year with revolving skyscrapers, a kilometre-high skyscraper, ski dome and a dinosaur park.

None of these projects ever got built, although some of the dinosaurs later became part of an indoor theme park. True, most of the more down-to-earth developments did eventually break ground.

In the case of Jumeirah Park, for example, the last to buy did get their villas but seven years late. Will those putting down deposits now for off-plan projects also have a long wait?

I doubt it. The system is better organised these days with developers paying funds into escrow accounts and paid in stages according to the progress of construction.

So where does this leave would-be Dubai homeowners?

If you have the cash, there has actually never been a better time to buy an existing property. Prices show signs of bottoming out after a classic down cycle, and there is plenty of choice.

Even for off-plan you will be able to strike a very good deal, just be wary about possible late delivery, the balance sheet of your developer, your own financial position and the service fees that might be necessary to pay for any over-the-top facilities.

Apart from the real estate cycle I would also pay attention to the business outlook for a major regional hub city like Dubai.

What’s happening in Saudi Arabia increasingly looks like a break with the past analogous to China in the early 1990s, and that hugely benefitted both Hong Kong and Singapore house prices. Perhaps Saudi Arabia’s reforms will have the same effect on Dubai and Abu Dhabi.

Then consider oil prices. It was also the 2014 crash in oil prices that ended the UAE’s post-financial crash recovery in property prices.

With Brent Crude now up from around $30 to the mid-$70s, is the impact on regional business so hard to predict?

Will house prices not follow upwards as businesses employ more people and they need housing? Will the existing over-supply not be quickly taken up - as it was in 2010 to 2011 - causing prices of the remaining housing stock to increase?

Of course this may not happen for another six months. A summer clear out will come first.

Then again UAE governments have been investing strongly despite lower oil prices so that the infrastructure and housing is ready to exploit this upturn and to stage the Expo 2020 that will bring record numbers of visitors to this country.

No, 2018 is not another 2008 for local real estate. If you can, this is the time to buy, not sell.

Peter Cooper has been writing about finance in the Gulf for more than 20 years