RSSPeter Penhall, CEO of Gowealthy Holdings gives a run down of the property market and how it fares in comparison to the rest of the world.
 |
Mature international markets are going through the natural mode of settling into corrections. To take the examples of current housing markets, the US is seeing prices falling for the first time in 11 years with around 4.2 million unsold homes at the end of April. |
The annualized rate of secondhand home sales is also falling by 2.6 per cent to 5.99 million in April 2007, compared to the United Kingdom, Ireland, Spain, Denmark, the Netherlands and Australia, where recent price increases have been the highest. Even relatively new to fame, markets such as India are experiencing a cooling in real estate prices. In any investment market, prices eventually revert to a long term average.
Home prices are cheaper in absolute and relative terms in Dubai and there is still some way to go, before the notion of a 'bubble can be stamped on. A rough parallel could be drawn between Dubai freehold property market and Singapore. In Singapore, rental prices are similar to Dubai, but property purchase prices are double. Whether that is going to happen in Dubai, or will Dubai rentals collapse due to oversupply, sending property prices lower is up for argument. It may be a little premature to make a definitive judgment on this critical point. However, we can draw some conclusions.
A quick view of the global property markets in recent years throws up certain consistencies such as static rentals and rising property prices. This can be attributed to falling interest rates, which have increased the real value of rentals and therefore property prices. The Dubai property market has yet to adjust to this, perhaps because the mortgage market is still relatively underdeveloped, and most Dubai property is still bought with cash.
The current rental yields, for example are quite high by global standards, at 7% to 10%, which still reflects the fact that the Dubai property market is still relatively under-matured. A longer term return to normalcy would mean either a drop in rentals or a hike in property prices. There are documented studies in the market that show that the Dubai real estate market will first undergo some kind of a correction downwards in capital and rental prices due to oversupply in 2008-9 (EFG - Hermes).
'Will demand match supply?' This is the million dollar question, and there is no doubt that in the medium-term, demand will sustain at current levels at least. The Dubai Statistic Department figures point to a Dubai population growth of just over 100,000 in 2006, with roughly 50% having a mid-end to high-end home owning potential. With a widely accepted practice of 2.5 people per unit, this would have meant a requirement of around 20,000 units of accommodation.
A shortfall in deliveries by around 10,000 to 15,000 units as per industry predictions, means that there is further pent-up demand in 2007 in addition that which has arisen due to normal population growth. If we follow the same logic, then a demand of around 30,000 to 35,000 units is expect to arise, which is not too far away from the deliveries for 2007.
For further information on Dubai property market and the array of properties on offer, please contact Gowealthy's UK office on +44-(0)207-887-6288 or visit http://www.gowealthy.com
