No drastic fall in Dubai property prices: London Business School

Weeks after a Standard & Poor’s, a global ratings agency, predicted 10 to 20 per cent decline in Dubai property prices, a survey by London Business School, ranked among the top 10 global programmes and research institutions, has ruled out the chances of any drastic property market correction for the next 12 months.

The survey, conducted with more than 200 business executives to analyse Dubai’s residential property market and the possibility of another real estate “bubble”, revealed 84 per cent of respondents don’t believe Dubai property prices will plunge in the same way they did in the 2008-2009 market correction.

In 2008, the global financial crisis had led to prices fall by almost 60 per cent in the emirate, leading to hundreds of projects being put on hold. The market registering over 20 per cent grown in 2013, but the pace of increase has thus slowed down since then.

“The vast majority of executives surveyed do not believe that there will be a drastic decline in residential real estate prices in Dubai over the next 12 months. Only three per cent of those surveyed expect an annual decline larger than 20 per cent,” said Joao Cocco, Professor of Finance, London Business School.

Forty-seven per cent of respondents said they would invest in the Dubai market with more than a third citing a strong economic outlook as the main reason for investing.

Emirates 24|7 reported earlier that ultra high net worth individuals were investing in the emirate, which is considered to be a safe investment haven and offers assets at reasonable prices, with high yields (nearly 7 per cent per annum), compared with many mature markets.

Other reasons included high rental yields and personal reasons, including the high quality of life in the UAE and preferring to purchase instead of renting, the survey said.

Forty-four per cent of the respondents, who included alumni, current executive MBAs and past participants of the school’s executive education programmes, said greater restrictions on real estate supply would most effectively limit market speculation and prevent a future real estate bubble.

Eighteen per cent of those surveyed believed tighter eligibility for home finance loans would also help. The UAE Central Bank has already imposed a new mortgage cap since October 2013.

“Roughly half of the executives surveyed recognise the risk that the supply of new properties will increase at a faster rate than the demand, leading to a situation of over-supply and a decline in real estate prices, and favour greater restrictions on construction as a way to mitigate this risk,” said Professor Cocco.

Respondents were divided on the question of whether property prices would move upward or downward, with just over 50 per cent saying they will decrease, and 49.75 per cent saying prices will remain stable or increase.

Sixty-eight per cent of respondents said that the residential market would not grow at the same rate as it has thus far. Just over half (51.5 per cent) said any losses or gains in the property market will be within 10 per cent of their current value, with 31 per cent expecting decrease by less than 10 per cent and 20.5 per cent predicting an increase of less than 10 per cent.

Respondents also felt the commercial property market would remain relatively stable, with almost 64 per cent saying any increases or decreases in prices would be less than 10 per cent.

“Respondents’ views of the evolution of residential and commercial property price movements over the next year were fairly similar,” said Professor Cocco.

In June 2015, Standard & Poor’s (S&P), a global ratings agency, has said property prices in Dubai’s residential housing market are expected to fall by 10 to 20 per cent this year but the decline has been ruled out the crisis to be as severe as 2009, stating the UAE economy is now diversified, demographics are supportive, positive geopolitical developments and all the market participants have learned from the past.
 

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