How the current Dubai realty boom differs from that of 2003-08

Dubai witnessed a major boom in its real estate sector between 2003 and 2008. After 4-5 years of unprecedented price increases, the realty market saw a devastating crash during the global financial meltdown that started in October 2008. However, since 2013 a new boom has begun in the emirate’s property market and many people seem to wonder if this new boom is sustainable or whether it is a new property bubble waiting to burst.

As such, we at MoneyGulf did a thorough research of the fundamental trends behind these two realty booms. After a detailed study, we have come to the following conclusions.

1. Unlike in 2003-08, the new boom is being triggered by strong demand from families who plan to live in Dubai long term because of the emirate’s political stability and safe haven status in the Middle East. So this time, the price increase in the realty market is fueled more by the end users rather than flippers.

2. In a bid to help sustain and regulate Dubai’s property market, government authorities have introduced a series of regulatory measures over the past few months. As a result, initially there was a cooling in the rate of growth, which in turn has positioned the market towards a more sustainable pace of growth.

3. Speculation was rife in Dubai’s realty market during the 2003-08 boom. However, this time speculators won’t have a free play as authorities have taken concrete steps to curb speculation in the property market. For instance, the emirate has doubled the fee it charges on real-estate sales from 2% to 4%.

4. Currently, all sectors of the UAE economy are in a recovery mode. So, property prices are seeing a more broad-based recovery. Since everything is picking up, they are also impacting the volume of deals recorded in Dubai’s realty market thereby driving sustainable growth and strong demand over the long term.

5. During the earlier boom, the economy of Dubai was increasingly driven by the construction sector, representing nearly 14% of GDP. As the sector saw a major slump after 2008 and started reviving only in 2013, currently the construction industry is relatively subdued with its contribution to GDP standing below 8%.

6. Due to the lower share that construction sector currently represents in the overall GDP, presently the realty sector is not at all overheated. Hence, there is no need to fear a property bubble as Dubai is now witnessing a sound and balanced economic upswing with realty growth not being reminiscent of 2008.

7. A report by Citi says the real estate and construction sectors are much less highly geared now than they were in 2008. This reduces the sector’s vulnerability to exogenous shocks, thereby bringing down the likelihood of a sudden stop in construction activity and its negative impact on the wider economy.

8. To secure banks and financial institutions from bad debts and over exposure, the UAE government has recently set up the Al Etihad Credit Bureau. Once the bureau is fully operational, it will help banks take an informed decision whether to offer credit to potential customers by providing their complete credit history.

9. The Al Etihad Credit Bureau is likely to go live this year. If that happens, there may be a lull in bank lending for some time as loans will be given only to those with good credit history. This means once the Credit Bureau goes live, those having bad credit file and history cannot hope to get a house on mortgage.

10. Though it may be too early to assess whether the regulations unveiled by the government will succeed in curtailing future growth at levels perceived to be more sustainable over the long term, the volume of deals that are being recorded in Dubai’s residential market is still within reasonable limits.

Taking into account the above facts, we can say that unlike the earlier boom, the current real estate boom in Dubai is being monitored closely by the government authorities with the specific aim of averting the scope of a property bubble as had happened in 2008.