Dubai property prices continue downwards as oversupply grows
Posted on 25 October 2010 with 3 comments from readers
In September apartment and villa prices in Dubai fell by 2.3 per cent, according to the authoratative Reidin.com report, while the oversupply of units can only grow bigger as Nakheel has just announced it is to restart building on several abandoned schemes by the end of the year.
The roughly $2 billion in construction work promised by Nakheel is good news for local contractors but not music to the ears of local home owners worried about the impact of oversupply on the value of their homes.
Oversupply
Nakheel CEO Chris O’Donnell said this week that economic growth would clear the general oversupply in Dubai in three to five years, a view shared by Arabtec CEO Riad Kamal.
A lot depends on the delivery of large projects to the market. Many still seem to be working on a stop-and-go basis whenever cash is released and are way behind schedule. This delay puts back the oversupply of property in Dubai.
But when looking at 100-storey plus apartment towers it is clear that one day they are going to be finished, and this future oversupply hangs over the market of existing property, depressing prices.
This of course assumes that there is not some other kind of global financial crisis that depresses oil prices again and hits trade and tourism in Dubai. For the present even buying for personal occupation is not likely to prove a good investment as the rent saved will not compensate for mortgage costs and house price depreciation.
Bottoming out?
Calling the bottom of this market is not easy. But if the local stock markets did bottom out this summer then the typical time-lag for a property bottom is 12-18 months, and that might be extended further out given the Dubai oversupply situation.
How much lower that bottom will be compared to current prices is the big question. Given a decent global economic recovery then the fall should be 10-20 per cent say local experts but a further global panic would reflect badly on a market where confidence has been shattered.
Finishing off projects no doubt makes sense in terms of delivering to buyers who have already part paid. But for the general market scrapping them entirely and compensating buyers with existing property would make far more sense.
3 Comments posted by readers:
Understanding Dubai Real Estate is like trying to untangle fishing-line!
There is so much denial, so many inter-related parties – Master-Devs, Sub-Devs, Gov-Devs, Banks, rich-elite-powerful, contractors, foreigners, the clueless, the egotistical, the con-artists……..that trying to logically deduce an if A happens, then B happens, then C should happen type analysis is pointless.
Best just do what seems to be the solution du jour these days – extend & pretend, delay & pray. Best advice for the near term seems to be – stay out of harms way.
I have been looking at home prices online seeing what people were asking for their studios,1 bedroom,2 bedroom and 3 bedroom units in the popular areas of Dubai and in my opinion they are still over priced. As I said before we still have not hit bottom in Dubai and people will continue to sell and move on until many of the issues I had addressed before are changed. The government of Dubai needs to change a lot of things before they can get expats back into Dubai again. A trading center can not be over priced. If it is over priced it will no longer remain competitive in the market.
Key points are allowing Dubai to become a base for expats and cost of living. As of now none of these issues have been addressed and until they are Dubai will never see the boom it had before again but if they do address these issues then Dubai will blossom again. I for one doubt that they will. Dubai sort of reminds me of South Korea where the locals are proud of themselves and all the laws are in favor of themselves blocking all foreigners from their markets. If one lived in both Asia and Dubai they would know and understand this otherwise they could not see past their own bigotry and hypocrisy.
I remember the old BUY BUY BUY BUY BUY in Dubai.. Buy for what?? What do you get if you BUY?? You don’t get permanent residency. Your residency costs you an arm and a leg for yourself and each person in your family which wishes to reside with you in Dubai.Your yearly community and association fees are high than paying property taxes on a home in the US. Your school tuition fees are crazy high where schooling is free for most people in the US and Canada.The basic cost of goods and utility bills are by far higher than most Asian countries and other places in the world.
I am not against higher priced areas as each country and state does have these places but in Dubai it is different as costs of living are higher for everyone and everywhere.
“Nakheel CEO Chris O’Donnell said this week that economic growth would clear the general oversupply in Dubai in three to five years, a view shared by Arabtec CEO Riad Kamal.”
Hmmm, no bias there.
I think they meant to say 3-5 decades, and only because the estimated lifespan of most of these buildings in the oppressive dubai environment is only 25 years, which means most of the buildings currently being built or already built will be functionally obsolescent prior to ever being 100 percent occupied.