ArchitectureFebruary 3, 20153 min read

How Dubai's Market Is Holding Up

Despite lower oil prices and a stronger dollar, the market is adjusting gradually rather than falling sharply. The factors behind its resilience.

Michael Chen

Director of Research

Previously with Knight Frank's Global Research team. Michael brings deep expertise in cross-border capital flows and emerging market real estate dynamics.

Dubai's property market faces several challenges at once: lower oil prices, a stronger US dollar that makes the dirham more expensive for many foreign buyers and the continuing effects of the 2014 cooling measures. Yet the market is adjusting gradually, without the sharp falls seen in 2009.

Factors behind resilience

Lower leverage: mortgage caps limit borrowing and forced sales.
End users: many owners live in their homes and have no need to sell.
Population growth: people continue to move to Dubai for work.
Regulation: escrow and registration protect buyers and developers.

Where adjustment is visible

Prices in some prime areas that rose fastest in 2013 have eased. Transactions are lower than at the peak. Rents are stable in most areas.

Comparing with 2009

In 2009, heavy speculation, high leverage and a global financial crisis caused a sudden collapse. Today's market has more end users, less leverage and stronger rules.

Opportunities

A calmer market gives buyers more choice and negotiating power. Developers are offering attractive payment plans.

Risks

A prolonged period of low oil prices or global instability could weigh further on sentiment. Supply in some areas may also put pressure on rents.

Why forced selling is less common now

In 2009, many owners were forced to sell because they could not meet off-plan instalments or mortgage payments, and their sales pushed prices down sharply. Today, several factors reduce the risk of forced selling. Mortgage caps introduced in 2013 mean that borrowers have more equity in their homes. A larger share of buyers paid cash. Escrow rules have improved the delivery of projects, so fewer buyers are left with contracts for buildings that may never be finished. Owners who are not under pressure can wait for better conditions rather than accepting low offers. This is one of the main reasons why the current adjustment is gradual rather than sudden.