How low can Dubai property prices go?

Posted on 22 April 2009 with no comments from readers

This is pretty much the same as asking whether now is the time to buy in Dubai? Prices have certainly tumbled down from the peak of the market last summer.

That was when we all got tricked by the surging oil price into believing that Dubai price rises would continue forever. Well the oil price crashed from $147 to $33 a barrel, and Dubai real estate behaved in similar fashion.

70% down

Apartments in the Burj Dubai, the world’s tallest building scheduled for completion this September, are selling for $600 per square foot compared with $2,200 last summer. That is a 70 per cent crash in prices.

Garden Villas on the Palm Island are down by around 50 per cent, ditto Jumeirah Islands and Meadows villas. If you want a real bargain how about $325,000 for a two-bedroom villa in the Arabian Ranches.

And yet these prices still seem expensive to many potential buyers. Home finance requires a 20 per cent deposit, and the mortgage rate is 8.75 per cent, up from seven per cent a year ago. Besides the local dollar-linked dirham has revalued upwards and so Dubai prices are higher in sterling and euros.

Professional investors only

The Dubai market is currently dominated by professional cash buyers, and they are looking for bargains. But properties are actually changing hands at the right price, albeit below the original selling price for the most recently delivered properties. Many owners are holding on, unwilling to drop their prices unless forced to by economic circumstances.

Indeed, economic circumstances – and new supply – will determine whether prices this summer actually prove to be bargains, or whether even cheaper prices are to follow.

How many people will leave Dubai this summer, their jobs culled due to the economic crisis? How many will move out because they can no longer afford the high school fees? Will business pick up in the autumn or continue to deteriorate, necessitating further job cuts?

Oil price outlook

The oil price – which determines the health of trade into and out of Dubai – is falling and the outlook does not look great for higher prices with the global economy in deep recession. And if people are nervous about their jobs they are unlikely to be buying homes.

Then again the supply of property continues to increase as new developments are completed and even more space becomes available for the seemingly limited pool of buyers. More supply than demand means falling prices.

This tends to the conclusion that the dramatic price falls seen in Dubai property recently do not represent the market bottom. What went up has come down, but still seems to be heading down.

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