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Knight Frank puts Dubai house prices at No1 for growth in the world but is this sustainable?

Posted on 08 December 2013 with 1 comment from readers

What goes up like a rocket generally falls like a stone. That was certainly true of Dubai property in the boom-to-bust cycle of 2007-9. But is this happening all over again with Dubai house prices up by 28.5 per cent in the first nine months of the year, according to Knight Frank, the fastest growing house prices in the world?

That set Dubai ahead of Beijing and Shanghai where prices were up 21.6 per cent. True Dubai is rebounding from a 60 per cent slump in house prices in the annus horribilus of 2009 but it is an impressive performance to say the least.

Slowing down

However, Knight Frank did report a slowing of price rises in the third quarter to an annualized 4.5 per cent against 7.3 per cent in the second quarter. The data cannot of course cover the fourth quarter, although we are now in the third month, and anecdotal evidence suggests that price rises have continued to slowdown.

The doubling of transaction fees by the Dubai Land Department in October caused something of a hiatus, while recent changes to mortgage deposit rules by the UAE Central Bank have discouraged more highly leveraged transactions.

The explicit aim is to create a market that discourages speculation in partially-paid off-plan units and encourages longer-term investors to feel that their investment is safe.

On the other hand, Dubai has also so far maintained a five per cent limit on annual rental increases by landlords, though it has just been removed in Abu Dhabi. This makes long-term investment less attractive to would-be landlords as they will not be able to raise rents in the future to keep up with inflation, while greedy tenants can hold them to ransom if rents fall.

Big price spike

Still the proof of a bubble is in the figures and a 28.5 per cent price spike in any market would normally be seen as unsustainable for a prolonged period. Indeed it could be that the Dubai house price bubble has already been lanced this autumn. Global interest rates are also on the way up and such hot money has probably also fuelled up the recent house price surge in Dubai.

That said a price crash like 2009 does not really look on the cards unless there is another global financial crisis, and the central bankers of the world are committed to printing money to stop that happening anytime soon.

In the absence of many other rising asset classes these days to interest investors, and with equities looking very overbought that could still propel Dubai house prices higher before the inevitable correction.

Readers of the ArabianMoney investment newsletter got the tip to buy Dubai property back in May 2012 and its advice on the best performing real estate to buy proved spot-on. If you are a serious Dubai investor then you ought to be getting this monthly inside information (subscribe here). We don’t offer it for free on this website.

Posted on 08 December 2013 Categories: GCC Economics, GCC Real Estate, GCC Stock Markets

1 Comment posted by readers:

Comment by GVM - 08 December 2013

The correction is near and estimated at around 30%.

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