Dubai Property to Take Many Years to Recover

Once again there are two sets of prominent reports on the Dubai property market, both offering polar opinions on what the future holds.

Firstly, after Colliers International's latest data shows an almost 8% rise in prices in the third quarter, Tej Kholi, real estate investor and founder of Ozone Realty Estate said: "The results indicate a bounce in the market and are an indication of an excellent recovery,"

Business Intelligence of the Middle East on the other hand, has warned its readers that Dubai home prices may drop by another 30% and take at least a decade to recover as more properties become available to a shrinking population.

"We expect it will take at least a decade for property prices to return to previous peak levels, and see only modest growth in real estate asset prices subsequent to the market trough in 2011," UBS analyst Saud Masud said.

The UBS statement that prices will not return to their peak for a decade is based on 9% per year growth in property prices, which is highly unlikely.

The biggest question for me is how more people didn't see the catastrophic crash coming. According to UBS 90% of Dubai's population is expatriate, and almost half the population is employed in construction or real estate -- talk about putting all your eggs in one basket.

"Stock valuations of UAE property companies have likely troughed following the downturn in the real estate sector in the region over the past 12 months. We have witnessed a strong return of risk appetite, not just for global equities in general this year but specifically for Middle East and North Africa (MENA)-based property stocks after the sharp sell-off in 2008," the UBS note said.

If you want my opinion, and most people who are reading the articles on this site do, there will not be any real growth in Dubai property prices until 2015. The market is the most depressed in the world, with prices having fallen 50% from peak, a further 30% fall forecast by UBS, and thousands of units on and coming onto the market with no one waiting to buy them.

Many funds are active in Dubai but they are focussed on commercial properties, and on money from rentals. Their mass-owned control of the market may make it less than attractive to external businesses, especially if they price fix office rents etc. This is important, because for Dubai property to grow in value, the economy needs to not only recover, but become so profitable that people once again want to come and live and work in Dubai.

Dubai has the best business infrastructure in the world, but it will take a good few years for the negativity to subside in the market, and for any kind of growth cycle to begin. I believe this will take at least 5 years.

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