A combination of supply and demand dynamics, the oil price and the outlook for the global economy will determine whether Dubai housing prices have another boom by the Expo 2020.
But I remain very optimistic that this will happen. Why?
First a glance back at where we have come from in the housing market. In brief, a 60 per cent price crash in 2009-10 was followed by a strong recovery almost to previous highs, then in late 2013 a doubling of transaction fees and mortgage restrictions dished the market again.
My own home is 24 per cent off the last peak price, judging by the unsolicited cash offer I had last week.
It is arguable whether this most recent decline in prices started at the end of 2013 or a few months later, when pending transactions worked through the system. Still, there is no argument that we are more than two years into a price correction. Will it go any lower?
Facing a long, hot summer with Ramadan on the horizon, talk about higher interest rates and a depressed oil and gas sector, the immediate prospects are not great.
A block of apartments I have been watching closely on the Palm Jumeirah had one actual transaction this month, albeit 10 per cent off the amount others in the same block were still optimistically hoping to achieve. It is the motivated seller who moves markets.
However, property market cycles are typically three years long and the biggest falls happen in the first year. We therefore would appear to be closer to the end than the beginning of this correction.
At this stage you would expect supply to be quite high. The property website propertyfinder.ae has just noted an uptick in interest by its browsers in homes for sale as opposed to rentals.
That could be significant. Then again, I checked out how many homes are listed for sale or rent in Dubai on this website and the total was 68,500, not so far away from the figure above 100,000 I recall from the depths of the global financial crisis of 2009-10.
This figure frightened me at the time. But actually the most remarkable thing was how quickly it fell in the subsequent recovery and the effect that had on Dubai house prices. Of course, this statistical source is a far from an accurate guide and has a lot of multiple listings, although it does at least tell you something quantifiable and directional.
Could this autumn represent the bottom of the current correction with the lowest house prices of this cycle?
I can’t really see the Democrat establishment hiking US interest rates before a presidential election that they would very much like to win. But global stock markets do look perilously positioned for a repeat of the autumn of 2007 or 2008, and this probably will not make Dubai residents surfing propertyfinder.ae sufficiently confident to rush out and buy, even if they have a safe job.
Yet buying a home is quite a long-term investment for most people and you should be thinking beyond the end of the year. It is basically a matter of having confidence in the future of Dubai and as commercial capital of the oil-rich Middle East, and that means oil prices.
BNP Paribas has estimated that annual global investment in oil and gas has slumped to US$400 billion this year from $700bn in 2014, and that means a supply squeeze of 5 million barrels per day by 2020 and oil prices that are higher than ever before. In short, the Saudi Arabian plan will work, just a bit later than advertised.
In addition, many investment managers anticipate that an imminent US stock market event will be followed by a revival of quantitative easing. It might be worth remembering how oil prices slumped recently when QE stopped and how they recovered strongly in the previous global financial crisis when QE started. Will it be any different this time?
At the same time, Dubai is not putting the brakes on expansion in key sectors that will provide the city with the infrastructure to profit from this oil price boom. Emirates will get a new A380 each month for the next three years. There is a hotel and hospital building boom. Dubai Expo 2020 is not a date that can be postponed for infrastructure like a new Metro line.
So just how long will it take for Dubai property buyers to really feel confident again? Maybe not nearly as long as the summer gloom might suggest.
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