No Bubble In Dubai’s Property Market – Stan Chart

Dubai’s real estate market is growing on the back of improved economic fundamentals rather than speculation, limiting the possibility of a new property bubble.

That’s according to a new research report by Standard Chartered Bank.

In the past twelve months, residential prices in Dubai have increased by 38 per cent for apartments and 24 per cent for villas while rents have risen 20 per cent and 17 per cent respectively.

The main factors enabling this improvement include Dubai’s growing economy, the increasing population, a return of confidence, improving regulations and Expo 2020, said the report.

The market has particularly benefitted from the two new property-related laws drafted by the Dubai Land Department: the Investor Protection Law and the Code of Corporate Governance for Developers.

“This commitment towards improving and strengthening corporate governance practices by protecting property rights has helped gain new investors and maintain existing ones. Stakeholders such as home-owners and tenants have regained confidence in the real estate sector, as reflected in the recovery of market prices,” said Standard Chartered.

“We also expect Expo 2020 to be a meaningful contributor to the sustainability of the housing market, in the event of a positive bid result in November 2013,” the report added.

Dubai’s property market was hit hard after the global financial crisis, with prices plummeting around 60 per cent in 2009 and 2010. Excessive speculative activity in the market during the pre-crisis boom days was one of the main drivers that led to the crash.

Market experts, including the IMF, have warned that the Dubai property market is again starting to display early indications of another bubble.

However, the market’s current behaviour is not similar to 2008, stated Standard Chartered.

There is a controlled increase in supply, with new projects being launched in a more planned manner than in the past, said the report.

“The key difference between the real estate market in 2008 and in 2013 is off-plan sales. Flipping of off-plan properties was the main reason behind the previous boom-and-bust cycle. Authorities are deploying efforts to ensure that off-plan sales are controlled,” it said.

Dubai’s Real Estate Regulatory Agency (RERA) has said that it aims to limit the dependency of developers on investors’ off-plan sales proceeds by ensuring developers make a 100 per cent land payment and put down a 20 per cent construction guarantee as collateral.

In the next two years, the emirate is also expected to draft seven new laws to regulate the market and maintain property values.

The laws with introduce controls to limit the fast re-sale of property, and focus on setting thresholds for premiums and percentage of completion of projects before they can be sold, stated the report.

“The market seems to be driven by fundamentals rather than excess speculation, in contrast to what the market went through in 2008. The outlook of the market will therefore depend on how these fundamentals evolve over time.

“Right now, we conclude that there are no serious indications of a speculative bubble in the housing market,” the report added.