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After the Dubai financial desaster shocked world markets in November 2009 the emirate has undertaken some serious and important measures to regain control over its financial situation. After prolonged negotiations Dubai signed the final restructuring plan with all of its 90 investors in March 2011. That gives Dubai 8 years to work things out.

Like in almost every economy the real estate sector is responsible for a big fraction of the GDP and therefore is an essential contributor to financial wellbeing...

In this regard things do not look as promising as official entities want to make believe. It's still a buyers market with substantial residential stock looking for investors. Depending on the agencies the numbers forecasted range between 42,000 - 50,000 vacant units at the moment. And still some new supply is flooding the market. Jones Lang Lasalle for example estimates the number of completed units at around 25,000 only in 2011. There is other real estate agencies that calculated up to 48,000 units for the next 2 years.

That massive residential stock can not be absorbed by the market in the near future. For the first half of 2010 the Land Department reported 1,188 sales. Jones Lang LaSalle reported that around 600 property transactions have been made in the 3 rd quarter 2010, down 50 % year to date. So per year there will be probably only around 2,500 - 3,500 sales transactions.

However falling sales and rental prices make the real estate market attractive again. An apartment of high standard of quality in prime location comes as low as around 1,100 - 1,300 Dhs/sqft (around 300 - 350 USD/sqft). That may be the reason why demand is picking up. As Varun Sood, chief executive of Tamweel - Dubai's second biggest home financing company - said 'demand is increasing among end users, and this is a very positive trend for the market.'

Especially the current political situation in many MENA countries like in Egypt, Bahrain, Libya, Yemen, Oman, etc. is boosting Dubai ́s economy as many of those refugees see Dubai as safe and stable haven.

Anyway demand is too weak as to pick up supply in the years to come. That will be a problem for some developers and banks, but it won´t be a problem for the Dubai real estate market as a whole. We will see a segmentation of the real estate market into prime, secondary and bad locations. Some areas are doing quite well at the moment. Some areas and projects will have to reduce prices substantially. And many projects in the middle of nowhere won ́t find buyers nor tenants at all.

To sum up: The emirate is on its way to recover from financial crisis. Not so the real estate market that is still in dire straits. But that special situation offers some real bargains for anti-cyclical investors. Buyers familiar with the market can take advantage if they know where and what to buy.
 

The full report is available on German Hawk Group

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