Nov 02

Busting the “Dubai real estate prices will sharply drop” myth

Recently I’ve heard many people say that real estate prices will drop as much as 10% to 15% with some even saying that the drop will be 20% in the coming months. This is just common misunderstanding of how general economics work and specifically the current real estate economy of Dubai.

It’s no secret that prices have fallen for the past few months in a slow and sustained way and it is also forecasted that they should keep dropping slightly in a similar sustained way. The real estate prices are only driven by offer and demand, and are always changing in a very slow way unless a specific event takes place causing the demand to instantly shift (Offer can’t instantly shift as it obviously is impossible to build new properties overnight). Let’s just take a look at what drove the prices up and down in the past few years:

1- Pre Q4 2008 : Excitement and anticipation were constantly building up and people were speculating on higher and higher prices, which led to bidding wars. During that period the prices were driven by extremely high demand.

2- 2008 – 2009 : Lehmann brothers’ fall as well as the almost entire global banking system crash caused a global recession and in Dubai cost many people their jobs. As people started leaving Dubai (most people living in the UAE were expats who ended up going back home) the demand dropped sharply. In this case the drop in price was due to very low demand and anticipation of further drops (uncertainty).

3- 2009 – 2013 : After the shock of late 2008, governments and companies started adjusting their policies and attempting to recover. The Dubai market restarted adjusting slowly and recreating jobs and security surely but slowly, which led to a market re-adjustment and a sustained increase in demand as confidence was slowly coming back as well as a few expats due to a slight job creation. The sustained increase in prices was due to the offer being stable (no new projects) and demand slowly going up.

4- Q4 2013 : Dubai won the right to host the Expo 2020, and with that came a lot of jobs being created to prepare for 2020 and excitement was back to the UAE. People came flocking to Dubai again, and this caused the demand to spike very quickly but the number of available properties was the same, so the prices shot up. Prices spiked instantaneously due to sudden large demand and same level of offer.

5- 2014 – now (late 2015) : Because of a sudden surge of demand after Dubai won the bid to host expo 2020, the offer of properties had to adjust to the demand, and several projects that were put on hold in 2008 were back on track. New projects were also developed, but now the demand became steady. As projects are getting completed, the offer is increasing and the demand is stable, which is causing a sustainable slow drop in real estate prices.

As 2016 comes around the corner, some more projects are still getting delivered which is causing the offer in properties to slowly go back up once again. The prices are therefore expected to keep slowly dropping as buyers have more options to choose from. This drop, however, should be at around 5% and will not be in a sudden overnight way. It will be a day to day very slow drop that is caused by the new projects outpacing the new expats arriving to Dubai.

Anyone saying there will be a sharp 20% decrease in the market either has no idea what they’re talking about, or knows that there’s a single very dramatic unpredictable event coming up that will cause such a sudden sharp drop.