Is there a real estate bubble in Dubai? You might think so from the astonishing
range of new and existing projects on offer at this year's Cityscape 2006 event.
Yet calling the top of a property market is always hazardous and at the event's
conference some experts advised that the conditions for a correction were just
Visiting from New York City, Donald Trump Junior, son of the famous realtor,
told delegates that a market top in Dubai was at least three years away but
that even then iconic properties would be a hedge against market weakness.
The Trump Organization is working with Nakheel on a 60-storey hotel and residential
tower for the centre of The Palm, Jumeirah, due for completion in 2009. The
two partners are also exploring cooperation on other Nakheel developments.
It is certainly a bull point that Dubai has secured the approval of the Trump
family, whose properties command a premium value just because of the association
with this iconic name.
Tamweel CEO, Adel Al Shirawi provided a detailed analysis of local supply and
demand and construction delays to also argue that the Dubai real estate market
would remain solid for at least a couple of years. In his view around 30,000
homes would be actually completed in 2007, not even close to the likely demand,
leaving both house prices and rentals under pressure.
Indeed, it is true that real estate booms often tend to last a bit longer and
to go a little higher than expected. But there were also many of the classic
warning signals of a real estate bubble forming at Cityscape Dubai 2006.
First, there were many new developers present and many new projects, a lot
of them in the mega project league. Secondly, the necessity to differentiate
projects is such that novel ideas are proliferating: revolving residential towers;
an apartment block shaped like an iPod, the iPad; and super-tall buildings which
are very expensive to construct.
Abu Dhabi rising
Thirdly, Abu Dhabi is emerging as a huge competitor to Dubai with the new $40
billion Al Yas Island from Aldar Properties less than an hour's drive from New
Dubai, and adjacent to its $17 billion Al Raha Beach project. It is clear that
this and the other mega projects of Abu Dhabi will compete for foreign investors
in the near future.
Finally, it was also perhaps a bit surprising to see many of the projects launched
during the boom still on display, and still looking for buyers. Such huge schemes
do, of course, require a lot of sales and some will have done better than others.
Nonetheless, the precise timing of a correction in this real estate development
explosion is impossible, and while actual physical supply remains tight prices
will continue to rise in Dubai as Mr. Al Shirawi told the Cityscape conference.
But as he also warned it takes only a one per cent mismatch between supply
and demand to turn the market and then the resulting correction will be sharp.
So to think of Dubai real estate as balancing on a high-wire might not be a
bad analogy, and whether Cityscape Dubai 2007 will be so bullish is a matter
of waiting to see.