13 November, 2007
Inflation is sparking property price rises in Dubai as supply continues to lag behind demand. Fears from some quarters that an imminent oversupply of real estate in Dubai would depress the sector in 2008 have now been pushed back by most observers to 2010, due to construction capacity constraints and the continued tide of new immigration. Indeed, the main concern is that local inflationary pressures are going to drive rents and prices higher.
It was not very long ago that Dubai property watchers believed that this autumn would be the moment that the market tipped into oversupply, with the prospect of declining prices and rents in 2008.
But today it would be hard to find a single analyst supporting that view. The new consensus is that construction delays and the continuing economic boom in Dubai mean that it will be 2010 at least before the proverbial shoe drops, and even then the slowdown will be gradual rather than a bursting of a bubble.
Why is it that the harbingers of doom have been so convincingly trounced by the outcome this autumn?
The short answer is that analysts overestimated the speed at which construction projects could be completed in Dubai. According to the original schedule, The Palm Jumeirah should have been completely finished by the end of this year, and yet the contract for the landmark Trump hotel complex has only just been awarded and the hotel sites on the crescent remain vacant.
Analysts also underestimated the strength and longevity of the Dubai economic boom. Again this can be forgiven, who would have forecast oil at $96-a-barrel even two years ago?
What is on the agenda instead for the immediate future is a period of further supply and demand pressures on the local housing stock in Dubai. That will mean higher rents and selling prices. This will be compounded by the impact of falling local mortgage rates. There will be more money available to pursue the limited housing stock and prices will be driven even higher.
At some point these pressures will ease. Perhaps the world economy will slow and consume less oil and that cools the Dubai economy with a lag of around six months. And eventually the mega projects will deliver a supply of property nearer to the level of demand.
However, the fact of the matter is that earlier wary forecasts have proven misleading. At least now observers are taking a more detached and skeptical view of the information on offer, and that might mean that the conclusions drawn are that bit more accurate. But we will probably have to wait until 2010 before that can be really known.
Personally I put little sway in the wary forecasters; its easy to play safe but rarely does safe equate to gains. My view is that no-one can predict the longer term future, but if gains are there to be had now, 1 - 3 years, then strike and take what you can and don't miss the boat. I like to compare the whole situation with the current UK market: invest in UK now and you may achieve some moderate appreciation over the next 2 - 5 years, may, but nothing stellar. In fact, right now in the UK the wary observers are predicting a slight correction in 2008, which is not good for investors. Invest in Dubia property now and you get the short-term gains, the huge potential for continued long-term gains, and in my view a lot less risk than the UK. Will your Dubai investment be underwater in 1 year's time - HIGHLY unlikely.
