Declining Dubai Real Estate Prices Will Continue To Fall In 2017
Will Expo 2020, the six-month long trade exposition, rescue Dubai’s floundering market?
It’s been a tough six months in the U.S. for the real estate market, with mortgage applications dramatically falling and economists predicting another imminent housing crisis. Across the pond, Brexit has stalled the UK’s substantial housing market, with corporate contractors making big bucks while affordable housing inventory dwindles. It’s official: We’re experiencing a global housing crisis.
And even Dubai, a city synonymous with luxury and wealth, is not immune to 2016’s financial snags. Property consultants Cluttons report that the emirate’s real estate prices have already declined by seven and a half percent annually by the end of the third quarter and will only continue to drop in 2017.
Home prices have been falling in Dubai since 2014, and are now 27 percent lower than they were in 2008. Apartment prices across the emirate have fallen by 2.5 percent in this year’s third quarter alone. In upscale residential areas such as The Meadows and Palm Jumeriah, property prices have dropped by around 11 percent in the last year. Average villa prices have been dragged down by these faltering high-end properties, and with prices not set to begin stabilizing until the fourth quarter of 2017, it looks as though sellers are going to have to either put the brakes on their sales or cut their sizable losses. Furthermore, in the first half of 2016, real estate transactions themselves fell by 30 percent, according to the Dubai Land Department—indicating not only a slump in prices but also a serious dent in buyers’ confidence.
What’s responsible for this dent in a formerly robust market? In a nutshell, oil. Although not dependent on oil for income, Dubai is heavily affected by the fortunes of its oil-reliant neighbors, and the steep and recent decline in oil prices has resulted in a deep economic slump in Dubai’s neighboring Gulf countries. In fact, according to the New York Times, the oil industry is experiencing its “deepest downturn since the 1990s”. The situation is so bad that formerly profitable companies are decommissioning their rigs, and around 250,000 global oil workers have lost their jobs, and all because the price of a barrel has fallen more than 70 percent since 2014.
But why? Although innovations in technology are moving at lightning speed, the world is nowhere near being able to rely solely on solar or wind power for its energy needs. Countries still need oil, and a lot of it, so why is the industry faltering? Very simply, due to uneven balances in supply and demand. Producers are now competing for multiple and varied markets, and therefore have had to reduce their prices to remain competitive. The knock-on effect has been profound.
So, how is Dubai planning to rescue its floundering real estate market? With Expo 2020, the six-month long trade exposition featuring global products and innovations, to be hosted on an as-yet-unbuilt 1,000-acre site. “Government spending on projects related to the Expo 2020 will help create jobs and stimulate demand,” says Faisal Durrani, head of research at Cluttons.
With the government due to spend $7 million on infrastructure, analysts are predicting that 300,000 jobs could manifest from the project—not an insignificant number, given that it makes up 20 percent of Dubai’s current workforce. This, along with a substantial increase in tourism, is likely to result in a surge in real estate interest.
However, according to Durrani, this potential pot of gold is at the end of a very long rainbow: “The impact will not start to be felt for another six to nine months, and in the meantime, stubborn sellers at the top end of the market who had been holding out over the past 12 months will have to face reality.”
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