Residential prices in Dubai have risen significantly as confidence has returned to the Dubai real estate sector. This trend is highlighted by recent reports suggesting prices may have increased more in Dubai (+22%) than in any other major global market over the past year. This has resulted in increased discussion on how sustainable are such increases and whether we are in danger of creating another bubble similar to that which burst so spectacularly as a result of the Global Financial Crisis in 2008/9.
Jones Lang LaSalle is of the view that the rate of increases seen over the past year is indeed unsustainable and that while residential prices and rents will continue to increase over the next 12 months, the rate of increase will decline somewhat. An extended period of slower and more subdued growth would be far more beneficial for the overall market, than a continuation of the current rates of increase, followed by another severe correction.
While the economic and demographic fundamentals have undoubtedly improved, residential prices have increased at a far higher rate, suggesting that speculative activity continues to influence the Dubai residential market. In broad terms, population and employment growth is running at around 5% per annum, while residential prices have increased by almost 20% during the past 12 months. Such
rates of increase can not be supported by the fundamentals alone, and suggest that speculative activity has increased. It is however important to note that this activity is less significant than in the previous boom and the market is currently based on stronger supply/demand fundamentals.
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