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What factors will drive Dubai's property market for the next 5 years?

Housing rents in Dubai likely to face pressure with a flood of new supply coming to the market. (Shutterstock)

By Parag Deulgaonkar

The slowdown in Dubai’s real estate market shouldn’t be a worry for long-term investors, says a top global ratings agency.

In its new report, Moody’s Investors Service states the slowdown in the market is “positive in the long run” and alleviates the “potential overheating”, though prices could fall 10 to 15 per cent in 2015.

“We believe that the slowdown in Dubai's real estate market is positive in the long run, as it gives the market time to absorb the existing supply pipeline, while also alleviating our concerns about the housing market potentially overheating,” the agency said.

“A less volatile market is beneficial for all stakeholders and will help developers plan their future pipelines in line with real demand, while at the same time acting to dis-incentivise speculators from ‘flipping’ off-plan units in order to generate a quick gain.”

It, however, points out the difficulty in accurately predicting where the market will stabilise eventually, due to lack of reliable and timely economic indicators.

Earlier this year, Knight Frank, a UK-based consultancy, said it expects prices to be down by 5 to 10 per cent, while JLL, a real estate consultancy, as well put the decline at up to 10 per cent.

Moody’s asserts the Dubai government’s plan to upgrade the city for the Expo 2020 through infrastructure spending and encouraging foreign investments in various sectors will provide market support over the next five years.

Dubai is the host of Expo 2020 that will run for a period of six months, starting October 20, 2020 till April 10, 2021.

The emirate aims to draw more than 25 million visitors, expecting Dh25 billion in total investment in infrastructure-related projects and create 277,000 new jobs.

Last year, the government said that the Expo 2020 master plan was on track with a target date for completion of all major construction activities on site by October 2019, allowing for a full year of readiness testing across networks, systems and technologies.

In 2014, over 140 nationalities invested Dh218 billion in the emirate’s real estate market, down 8 per cent from 2013.

Property experts predict transaction volumes to remain subdued this year.

The ratings agency attributes the weakness in demand to investors’ perception that the market has reached its peak, after three years of strong growth and tighter regulatory measures announced in late 2013 aimed at curbing speculation.

The market here is also influenced by the purchasing power of foreign investors and expatriates, regional geopolitical events, economic slowdown of oil-exporting nations and the strengthening of the dollar-pegged UAE dirham against the euro and rouble.

In the report, Moody’s expects prices to soften in the suburbs due to supply pressure as number small developers launch projects.

In case of upscale master developments, such as Emaar Properties’ Downtown project, it states they are likely to remain more resilient as developers have the ability to control and phase out supply.

Emirates 24|7 reported earlier that 78 new projects were launched in 2014 with the Dubai Land Department reviving at least 43 stalled projects worth over Dh10 billion through its two Tayseer and Tanmia initiatives.