Thursday, September 12, 2013

Are alarm bells ringing for Dubai property market?

The real estate market in Dubai is back to its boom days, with plenty of fresh projects, mega-developments, investors and liquidity, all of which are true indicators of a booming real estate sector in the emirate.

The developer, Emaar, launched at least six new projects in Dubai this year, marking a 10 percent growth in second quarter net profit, while Nakheel posted 57 percent rise in profits during first half of the year.

Deyaar, announced 47 percent increase in profit during second quarter. The private developer, Damac has unveiled a series of fresh projects in the city, including a major golf course community, in partnership with Trump International.

As developers announce fresh projects, prices and rentals are shooting up, even touching peak values in certain areas, as was the case during 2008, before the property slowdown in Dubai.

Despite the increase in selling price of properties, there is increased demand, and the property market is drawing investments worth Dh.53billion during first half of the year, marking a 49 percent year-on-year growth, says report by Dubai Land Department.

The Director General of Land Department, Sultan Butti Bin Mejren, said that real estate market in Dubai seems lucrative due to its stability, diversity and promise of high return on investors. But, such factors continue to inspire confidence in local, regional and international investors alike, which signify complete recovery from global financial crisis.

Back during the years 2009 and 2010, the Dubai property bubble led to crash in real estate prices by around 60 percent and scarred the entire emirate. Dozens of projects were cancelled or suspended, and dubious developers disappeared and investors lost millions.

With better regulations, increased transparency and improving economy mainly boosted by tourism, Dubai put this shine back into its property market over the past two years.

The Dubai Ruler, HH Sheikh Mohammed bin Rashid Al-Maktoum, in July this year, issued a decree stating that the emirate will liquidate cancelled property projects and use the funds to repay investors. The Land Department too, is putting in place new legislation, to be ready by 2015, to better regulate the real estate sector in Dubai.

Despite the positives, the steady acceleration of the market to pre-crisis conditions have set the alarm bells ringing. The International Monetary Fund (IMF), warned that Dubai may need to intervene in its property market to prevent another real estate crisis.

Although it is too early to speak of a bubble, the price increases continue to happen in Dubai, and action need to be taken to prevent another bubble, said Harald Finger, IMF Mission Chief to the UAE.

A senior Research Analyst at CBRE Middle East, Mohammed Faheem, said that with increased confidence among developers and buyers, there are increased indications that the residential sectors is beginning to overheat. This situation need to be monitored closely over the next one year to ensure that another price bubble is avoided, which demonstrates that one have to learn lessons from 2008 happenings.

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