Fears about another potential collapse in Dubai property prices to rival the fallout from the 2008 financial crisis are unfounded, according to a new report. The Reidin/Global Capital Partners report, Dubai: This time it’s Different, says the fundamentals of the Dubai economy are much stronger than after the global financial crisis, when it contracted by 4.3 per cent.
Sameer Lakhani, the managing director of Global Capital Partners, points out that Dubai’s GDP grew by 4.1 per cent last year, while company formations increased by 7 per cent compared with 2008-09 when they remained stagnant.
Mr Lakhani’s paper also says that the decline in rents and sale prices during the past two years have been nowhere near as severe as in 2008. In the first 22 months of the 2008 crisis, property values dropped by 31 per cent. This time, the decline over the same period has been less than half of that, at 13 per cent. Budget spending has also continued to increase, up 11 per cent last year, compared with a 5 per cent contraction in 2009.
“If we were slashing jobs in the hundreds of thousands, which is what happened in 2008, rents pretty much collapse. Right now, you’re not seeing that at all. You’re only seeing single-digit declines in rent,” Mr Lakhani said.
The report said that rents in JLT from the peak of the market to the trough dropped by 53 per cent between 2008 and 2010, while during the current cycle they have only fallen by 4 per cent. Studios in The Greens dropped by 47 per cent in value after the financial crisis but have maintained their rental value in the past two years.
“This time it is different. Markets are already starting to recover,” Mr Lakhani said. “I’m not saying we’re off to the races, I’m just saying that the market bottomed out pretty much in January-February.”
A study published last week by Core, a UAE associate of Savills, said that there had been socio-economic and geopolitical deterrents to investors putting money into Dubai property and that the consolidating jobs market has caused a decline in tenant demand.
Its Dubai Investment Outlook report also said that although affordable and mainstream homes were offering higher yields for investors than prime units, historically they underperform prime property.
Units in prime communities in Emirates Hills have dropped by 4 per cent in the 12 months to March 31 and Palm Jumeirah homes have fallen by 6 per cent, compared with a decline of 17 per cent in the more affordable Jumeirah Village and 13 per cent in Dubai Sports City.
“The realisation that the market is ‘bottoming’ seems to have stimulated interest from investors and end-users who have been waiting for several years for ‘deals’, prompting renewed inquiries for better value-for-money products, especially in the prime residential segment,” said David Godchaux, the chief executive of Core.
He said that coupled with the limited available new supply in the few established ultra-prime residential areas, the outlook continues to be steady in the mid-term until 2020.
mfahy@thenational.ae
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