Long summer for Dubai property before any pickup

Absent a major fin­ancial catastrophe like a Wall Street crash, expect Dubai property to bottom out over the summer and begin a cautious recovery later in the autumn. And this despite a slight rise in local mortgage rates, courtesy of US Federal Reserve Bank’s rate hike.

This week, developers assembled for the 13th edition of the International Property Show at the Dubai World Trade Centre exhibition halls, hoping this would be a lucky number.

Only two Dubai developers took part, Azizi and Dubai Properties. Their stands were busy but this was a hard sales pitch to a few disinterested clients. Their luck was out.

Azizi’s apartments in Al Furjan next to the new metro line looked fully priced.

Talk of “price appreciation” was hard to swallow after a report from property consultant Cluttons this week reported Dubai prices are down 7.8 per cent year-on-year, though this slowed in Q1.

So why be confident about the future now?

Business cycles do have a habit of repeating themselves. I started writing about property as the recession of the early ’80s was coming to an end. Then I correctly predicted that property prices would continue to rise even after Black Monday in 1987, when money left shares and went into property.

I was also not far off predicting Britain’s property crash of the early 1990s in the venerable Building Market Report. It was not difficult. My father was a small property developer and I spotted the cyclical nature of the business at an early age when he nearly went bankrupt in 1974 to 1975. In mature markets the cycle is about three years from top to bottom, give or take six months, and a possible sideways drift at either the top or bottom or both.

Dubai was clearly an immature market in the 2000s. It started without a legal system in place and the boom ended in late 2008 with a bust in uncontrolled off-plan sales and the global financial crisis, an unfortunate double whammy. It is nothing like that today. The market started to recover from the summer of 2011 when the Dubai World debt rescheduling was signed off, and showed indications of beginning to overheat in late 2013. But instead of letting the market turn into a bubble like 2007 to 2008, the government wisely doubled transaction fees and upped mortgage criteria. By the summer of 2014, house prices were falling.

Three years later and they are still edging down, although the biggest effect was in the first 12 months or so, as usually happens in property market cycles. Given that local business remains in a downsizing phase after previous low oil prices and a strong dollar, this summer is not likely to mark a pickup phase for local real estate.

More probably it will mark a bottom in prices, as the cyclical model would predict.

The reason for being somewhat sure that a recovery will follow this autumn, absent other shocks to the global financial system, is that the catalysts to make it happen are already in place: namely a doubling of oil prices over the past year, and a weaker US dollar since the innaugration of Donald Trump as the president.

Oil prices are north of US$50 a barrel now and higher prices are likely on the horizon. The price of oil also moves in cycles, and the upcycle is very clearly established. Supply shortages created by the huge cuts to exploration and development spending herald higher prices to come. What effect does this have on Dubai, a very small oil producer? Well, it’s the commercial capital of the world’s biggest oil region. The impact on Abu Dhabi is even more obvious.

When I wrote this column an old friend, who is head of an oil exploration company, was flying from Singapore, relocating to work in the UAE for a second time to prepare for his firm’s expansion as the cycle dictates. Then there are my young friends doing very well in a ­local IT business.

They have been waiting for the bottom of the Dubai property market to buy their first home. The last time I met them they were getting ready to buy later this year.

On the other hand, it may be a long, hot summer for Dubai developers and estate agents with more people leaving the city than arriving this year. The night is always darkest just before the dawn.

Peter Cooper has been a financial journalist in the Gulf for two decades


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