Will Dubai’s Property Bubble Burst?

Summary: Taking a balanced look at all the elements in favour and against the ongoing positive advancement of Dubai’s crazy and amazing property market

I hope we will be forgiven for having momentarily turned our back on the property market in Dubai – it’s not that we’ve stopped caring for a single second about what happens in this glitzy and surreal world of ever bigger and better real estate projects, it’s just that the global financial crisis caught our eye!

We realise we’ve been remiss and so our eye is back on the ball, and in this article we want to discuss whether Dubai’s property bubble will burst because the market sentiment is certainly divided and there are those championing the ongoing positive advancement of the property scene, while at the same time others are pointing out the pitfalls.

So, on the one hand you have the fact that Dubai’s government will pour as much money as is needed into any element of the economy to see it safe, but on the other hand you have to be realistic about these things and ask, where will the people come from to live in these mega housing estates and to shop in these huge malls?

Back in the 1980s before the concept of freehold property and embracing consumerism was even a glint in the eye of the emirate’s leader, some of the banks in Dubai suffered a mini financial meltdown.  The government stepping in, scooped them up, bailed them out and renamed them Emirates Bank International.  As far as anyone can tell, this absolutely set the exact precedent that Dubai’s government will follow should any element deem to undermine its overall economy…which is why many people have unwavering faith in the overall and long-term success of the emirate.

Should the current global financial turmoil impact on Dubai’s banks and prevent them from lending to each other, to constructors and buyers, the government will inject cash.  Or the central bank of the United Arab Emirates will – a couple of weeks ago they ploughed USD 13.6 billion into the UAE’s economy to ease credit problems in fact.  So, why would anyone in their right mind be concerned about the property bubble in Dubai?  Well, banks actually are still in the business of reining in their lending activity…they have shareholders and an international presence nowadays.  What’s more, Dubai is trying to be taken seriously as a global player in the banking and financial world…therefore lending and spending willy nilly is not really allowed.

This is potentially going to impact negatively on the massive ongoing development plans that constructors have in the emirate…they need lending to get their projects underway, and what’s more, they need the banks to lend to buyers to get them spending on property in Dubai.  But there is genuine reluctance in the banking sector and this is making funding harder and harder to come by.  On top of these jitters that no one can honestly deny in Dubai, there is the very real fact of corruption in the construction industry.  A series of high profile arrests have of course helped by showing that such antics will not be tolerated, but at the same time, everyone knows that the corruption still exists and that shoddy and underhand practices are pretty much par for the course within Dubai’s real estate landscape.

So, you have all of these negative issues to think about when trying to determine the future path of the emirate’s property economy, but you can offset some of them with the knowledge that the government in Dubai has pretty much endless pots of liquid gold to keep all elements of the economy afloat.  Do these separate elements balance it out and keep everything in favour of positive prospects of Dubai’s property market?  Well, maybe – but then you have to factor in consumer demand.  There are only so many people who want to live and work in Dubai, therefore there is only so much demand for property.  What’s more, we are all being impacted fiscally speaking, by the state of the global economy, so there is only so much we can and want to spend on property – whether to buy or to rent.  So these elements come in to play as well.  Yes, you can build a billion more properties on acres and acres of reclaimed land and make them the most spectacular homes in the world serviced by the most incredible infrastructure and amenities – but who actually has the willingness, commitment and affordability to buy them?

Is anyone being honest when they think about the longer-term prospects for Dubai’s property market?  Surely some degree of stabilisation and sanity has to come into play at some point…

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