How Will Dubai Be Affected by Its Growing Property Market?

Dubai, located in the Middle East, has invited foreign parties to invest in real estate since 2002. Since that time, interest and investment in Dubai property has been phenomenal, leading to a 79% increase in property prices since the start of 2007, according to Morgan Stanley, a global financial services firm.

So up until very recently, the growing property market has seemed to be nothing but pure bliss for Dubai. The money has been coming in buckets, the work has been plentiful, and the dreams for a bright future have been increasing for its inhabitants.

If things continued to grow the same way, it would be nearly a Utopian society. Everyone would be able to obtain a livable wage and take care of themselves and family. People would steadily earn more income, and since things were going well, would probably continue to re-invest their money in Dubai. It would be a positive cycle benefitting everyone.

For some time now, the rising oil and gas prices in the rest of the world have made for happy times in Dubai. But now, it is catching up even with them. The rising prices of gas and oil affects even the supplies that Dubai needs to continue its property market growth. Importing these supplies, with inflated prices due to those oil prices, is now eating into Dubai wallets.

Utopia will have to wait.

This is not to say that things are critical. There are still many benefits for the citizens of Dubai. Increased tourism and investment in property is still helping to keep people employed, thereby keeping food on the table and dreams alive. But Dubai will soon need to figure out how to stabilize their market.

If Dubai were to continue to grow and grow, they would soon find that some do not like living in an area with that much population. People will move further and further out until they’re not in Dubai at all. Therefore, they will need to know when to say when.

Knowing where to draw the line is difficult, especially when it feels as though you’re riding a tidal wave of money. Knowing, also, how to level off when things start to fall is difficult and requires planning now.

Since the property market in Dubai has recently experienced a bit of a cooling period, realtors and other property investors are now coming up with strategies to prevent a full-out property bust, akin to what happened in Singapore’s property market in the 1990s (it fell 80% in only 18 months!).

Dubai is looking at tax strategies to keep investors longer-term, require buyers to keep their properties for a minimum amount of time before trying to re-sell them, and some are looking more at leasing and renting as options to continue to bring in profit for the region.

Changes will also soon come to Dubai’s mortgage laws, as announced in August 2008. These changes are also meant to bring stability to Dubai in the coming years.

Despite changes, the world will be watching Dubai carefully over the next several years to see if what’s hot now continues to stay hot, or cools and crumbles.