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Has the downturn reached Dubai? - 25 November 2008

According to some agents and real estate brokers in Dubai, property prices in some parts of the Emirate have fallen by up to 40 per cent since September. While it is probably too early to begin predicting the end of the remarkable growth of Dubai, this anecdotal evidence shows that even one of the most powerful economies in the world is not completely immune to the global economic slowdown.

According to one agent, the price of a four-bedroom villa on the Palm Jumeirah is now 10 million UAE dirhams, compared to 15 million dirhams in September. The price drop is being attributed for a large part to the difficulty many buyers are finding sourcing mortgage finance in Dubai.

Dubai’s Islamic mortgage lender Amlak said last week that it was suspending new loans as the property sector shows signs of slowing down, and even those using western banks to finance their purchase are finding that the banks are tightening lending restrictions and being increasingly selective of customers to whom they choose to lend.

Builders and developers have admitted that they are finding it the property market slowing, and Nakheel, the government-owned developer, has said it is scaling back work on constructing the huge Palm Deira project. This largest of the three man-made Palm islands is projected to house up to a million people when it is finished. The Dubai government has also stepped into the market to reduce supply of new housing stock, though quantifying exactly how they are planning to implement this is as yet unclear

This slowdown in the Dubai market is not completely unexpected in the context of the global economic conditions. As so much of the property market in Dubai depends on foreign buyers coming into the country, the tightening of the circumstances of those buyers was always going to have an impact on their investments overseas.

At the same time, the rental market in Dubai is set to continue to grow – if people cannot find mortgages for the properties they want to buy, but are still planning on moving to the UAE to pursue employment or lifestyle opportunities, they will choose to rent until their economic conditions improve. Companies are still being attracted to Dubai by the lenient tax regime and the opportunities for global growth offered by the Emirate.

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