Dubai real estate Bubble


Staff member
May 18, 2022

What Is Dubai Real Estate Bubble?​

If you are interested in real estate, you have likely heard of the "Dubai real estate bubble." Do you wish to learn more about it? You are at the right place!

Investors in the stock market recognize the possibility that rates will occasionally fall dramatically, but those who purchase homes may believe their home’s value will never lose that far. They are not mistaken. The housing sector has not historically experienced numerous price bubbles and high volatility in other markets. Housing markets, however, occasionally experience moments of irrational exuberance that are followed by declines in both demand and prices.

The real estate market in Dubai has seen cycles. 2005 marked a massive peak for us. The rise led to a crisis in 2008 as a result. We experienced a market recovery and a new all-time high during 2014. In 2018, the market plummeted once more. In 2021, the real estate market hit a record high. An S&P analyst predicts that the Dubai real estate market will crash in 2022. When searching to buy or rent a property, reports that the city's prices will decline and stabilize have been a great resource. However, while housing costs are still low, folks considering moving should not be concerned.

Why is the potential Dubai real estate bubble being discussed?​

On Tuesday, a senior IMF executive said that Dubai might require more significant measures to combat real estate speculation in Dubai as it once again raised concerns about a possible real estate bubble. The region's business and trade hub, the Gulf emirate, had a significant uptick in growth last year because of the government's commitment to real estate projects totaling hundreds of billions of dollars in the wake of the 2008–2010 real estate market meltdown.

Masood Ahmed, director of the International Monetary Fund's Middle East & Central Asia division, said that while the Fund had welcomed steps taken by Dubai's administration and central bank last autumn to curtail what could have turned into a "speculative increase," more was still required. In a briefing on the future of the regional economy, Ahmed stated, "Our perspective is that these steps are fine, but if we look at what's occurring in the market, it's time to explore harsher actions." Especially in terms of strategies to deter speedy turnaround, or what is known as a flipping estate in Dubai.

Reasons Behind the Potential Real Estate Bubble:​

Despite the clear COVID restrictions, the Dubai real estate market has experienced an exponential expansion in recent years. Because Dubai handled the pandemic better than all other nations, investors are not thinking about the upcoming Dubai real estate crisis in 2022 or 2023.

The highly successful Expo 2020 spectacular, postponed from October 2021 to March 2022 and attracted numerous foreign visitors and investors, helped the Dubai real estate market expand during and after. After gaining much interest from around the world to attend an event in the closing weeks, Expo 2020 Dubai saw more than 24 million visitors throughout the event's first six months.

After Expo 2020, real estate experts in Dubai thought the market would cool. Still, the unpredicted Russian - Ukraine war caused a massive flood of buyers looking for a haven for their hard-earned money, fueling the market's continued growth. Contrary to Dubai, governments around the world have proceeded to print money to support their economies during COVID, but doing so has resulted in high inflation, forcing governments to raise interest rates, which has undermined the trust of the world's financial markets and caused the sharp decline in stock price levels during 2022.

According to figures released on Tuesday, the expansion of the UAE's non-oil private sector's business activity reached an all-time high in April, and both the number of new investors the opportunity and the number of tourists increased by double digits in 2013. Dubai Department of Economic Development's head economist, Mohamed Lahouel, concurred with the IMF's real estate assessment. The current real estate market is undoubtedly rife with speculation. At the same event, he remarked, "What disturbs me is that... human greed is driving it.”

Statistical Indications:​

Data show that apartments, which make up between 85 and 90 percent, saw a 6% increase in price in the 2nd period of 2021. While apartment rentals have stayed unchanged, villa costs have increased as well. There is not such a thing as the property's "right" value, according to Informa's Speller. The only way to know if something is important is to look at the price others are willing to pay.

Put another way, everyone has a different idea of the “right” value. The world would never function properly if those with opposite views didn't attempt new things to advance.

Over $64.3 billion worth of real estate deals were completed in Dubai last year, an increase of 53 percent. Residential real estate sales prices increased by roughly a third during the first three months of this year compared to the same period last year, which led the IMF to issue a probable bubble warning. It's time to exercise caution when it comes to macroprudential policies, according to Ahmed. However, if lending into real estate increases significantly—it is for a cash market—then perhaps it is time to consider other macroprudential policies.

Effect on potential investors:

Nowadays, people look for various purposes for their houses than they once did. Due to multiple facilities, people will constantly desire to purchase residences. However, buyers are pretty picky about where they choose to live.

The Dubai market could fluctuate for a variety of reasons. After decades of demand and supply imbalances, it is safe to predict that prices will stabilize. There have been major price changes in the Dubai real estate market in recent years.

Concisely, a real estate purchase or sale decision is far riskier than investing in stocks or bonds. However, some guidelines focus on long-term averages instead of short-term highs and lows.