A post-bubble Dubai? Maybe....
The end of 2013 marks five years since the UAE entered a most difficult financial phase triggered by Dubai’s real estate slump. Five years is a reasonable timeframe, making it pertinent to ask if it is time to pronounce the crisis over. There is no official word yet, but the consensus seems to be we are almost there... but not quite.
The property market has come a long way since prices slumped by 60 per cent or more as the bubble of mindless speculation began to burst in 2008. Prices are not back to those dizzy levels, but have been climbing at a steady pace.
Dubai has, in fact, been named as one of the fastest growing property markets globally for 2013, with prices and rents touching the highest levels in five years. The awarding of Expo 2020 has provided further impetus, raising expectation about the likely course of the market and the economy in general.
The market rebound, coupled with the overall economic upturn, has been linked to a significant pick-up in the stock market, with Dubai emerging as one of the best performing globally this year. By end November, the Dubai stock index was up 82 per cent. Abu Dhabi gained 46 per cent during the same period.
Growth estimates for the overall economy have been revised upwards, with most suggesting more than 4 per cent, a significant improvement over the last two years.
In terms of financial stability and debt management, Dubai’s situation is much more comfortable thanks to the perception about the emirate’s safe haven status and future prospects. This has made it possible for the authorities to plan refinancing of some of the major debts maturing in the short to medium term. While the required infrastructure build-up for the Expo and other developments would necessitate raising of substantial additional debt, improved credit perception is expected to help in the process significantly.
Overall, there has been improvement on all fundamental issues, barring some very difficult problems relating to financial obligations of market players and individual investors left behind by the crisis. The bankruptcies and defaults and the problems of stalled projects still dog. Dealing with devastated lives and ruined reputations is another question that has no easy answer.
Striking a balance between growth and ambition, particularly in view of the revival of some projects and launch of new ones, remains a delicate issue. It requires firm handling, particularly as the possibility of a return of some negative tendencies of the previous boom is becoming evident.
The fact that Dubai is among the fastest growing property markets is a great compliment to the resilience of the sector, but the risk of upswing in values needs to be controlled, considering that prices have been projected to increase at the same rate as in some of the previous quarters.
If prices are allowed to go beyond reasonable levels, it can complicate issues and lead to overheating, something the authorities have been meticulously trying to avert. Despite the introduction of a number of measures to prevent speculation-driven movements in the market — doubling of property registration fees, tighter norms on mortgage finance and graded increases in rentals replacing fixed caps — there are fears rents could go up substantially as landlords seek to make good their notional losses during the crisis years. This can put decent housing beyond the means of a large number of tenants.
Expo 2020 has no doubt raised the pitch for everyone, but there is need to watch the cost of living diligently to prevent matters from tipping over.
By K. Raveendran
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