Dubai Property Prices Likely to Fall

The prevailing high prices in Dubai’s real estate sector are not sustainable for long and a slowdown is likely, a top asset management company chief executive said this week

Dubai Marina

“Prices are bound to stop growing at this maddening scale,” said Shehab Gargash, chief executive officer (CEO) of Daman Investments, on the sidelines of a press conference to announce investment in renewable energy venture. “Will it be a crash? I don’t think so. I doubt we will see a significant long-term bust. But we will see corrections.”

As long as demand continues to grow, the real estate sector will witness growth and prices will rise, he added. “But Dubai is no longer a straightforward build-and-sell proposition.”

In recent weeks, the real estate sector in the UAE has been under the spotlight for various reasons, including a much discussed, and criticised, Morgan Stanley report which said that Dubai is headed for a 10 per cent dip in prices in two years when supply comes online.

Gargash, however, did not elaborate on the kind of correction the market may experience but said that the market is in consolidation phase. He said that the market will see a differentiation in terms of good quality and bad quality developers.

A developer agrees with Gargash’s thoughts. Given the “unrealistic” spiralling of the price of land in Dubai, property prices have been skyrocketing, said a developer and “that is simply unsustainable.” Construction costs in Dubai are also soaring, adding to the problem.

“The prices are unreasonably high”, said Mohammad Nimer, chief executive officer of MAG Group Property Development. “It is becoming less and less attractive for investors and end-users and so, a correction is bound to happen. And people who bought will actually realise that the price they paid was ‘inflated’ and the secondary market investors and buyers will stop and think before they invest,” he added.

Over the past month, the Government of Dubai has passed a mortgage law that makes registration compulsory and also laws that crack down on off-plan sales, giving rise to fears of speculation coming down and the market getting badly dented. “The new laws passed will have a positive impact on the market, though they will slow down the market. The market will be harder but it will be stronger,” he said.

It is premiums that the market has witnessed in recent years that may become a thing of the past, said Sudhir Kumar, managing director of Realtors International, adding that he is not expecting a slackening of the market in the next two years.

“There may be a temporary shake up of the market, given the corrective measures being taken,” he said. “What is possible, is when all the regulations are passed, then the abnormal rise in premiums will not happen.”