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10 November, 2016
Dubai is a property market prone to very strong boom and bust periods, which means it switches between being one of the world's hottest investment destinations and being a crashing market that is best avoided. However, Dubai is currently going through a correction of a markedly different nature. This time, though the market's most recent boom cycle may have run out of steam, the current phase of the market looks like that rare beast; a correction for the better.
Property values in Dubai have definitely been falling. For seven successive quarters, there have been decreases in property values. Prime property – one of the Dubai market's key sectors – lost 10% of its value between July 2014 and the same month of this year. Different metrics give very different figures for the overall market, but most of the more reliable measurements point to a drop of somewhere between 8% and 15% in the past 18 months. Even the top end of this is incredibly mild compared to the previous crash. While the current correction has seen values fall by no more than 15% and perhaps as little as 8% over the course of seven quarters, the last crash saw 40% of values wiped out in the first three months of 2009 alone.
As the situation has borne little resemblance to the catastrophe of the crash which began in 2008, and as such the reaction of analysts and investors has also been very different this time around. Few predict, expect, or even seriously fear another major crash. While investors have understandably been a lot more reserved during this correction than during the boom periods, they have not abandoned ship or lost interest in Dubai. Many of those who have already invested in the market have decided their investments are worth holding onto in order to simply ride out the storm and wait for the next boom period.
Investors have not even lost interest in picking up new properties for sale in Dubai. For some, not losing interest means merely waiting on the sidelines, watching the market closely and waiting for the right time to buy. For others, however, the relatively mild correction has been an opportunity to pick up properties at lower prices ready for the time when values are growing again. The attraction of this is sharpened by sustained and strong demand for rented accommodation, meaning rents have held relatively steady as prices have fallen and yields have therefore been pushed upwards.
Ultimately, the correction is likely to be good for the market because it has been a relatively gentle way to relieve some of the pressure that rapid boom cycles build up. There have been concerns in particular that Dubai's property prices have not really reflected the world economic situation, and this rather mild correction is hopefully bringing things more in line with that wider context. While certain factors, such as the future of the EU and the state of the US economy remain uncertain, the expectation is that prices will continue falling gently for the short term and, at most, medium term, but no catastrophe will be forthcoming. As for recovery, some are predicting that, subject to wider economic factors, it could start as early as next year.
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