The Gulf emirate’s annual Cityscape property fair opened Tuesday with developers foreseeing price declines of about 15 percent this year, yet confident there would be no return to the days when huge projects were abandoned half finished.
Scale models of new skyscrapers, sprawling villa compounds and leisure centres, including a new indoor ski slope, were rolled out by several companies.
Analysts have signalled a slide in property values, which had recovered significantly in the past two years after shedding half of their value in the 2008 global financial crisis.
Dubai had shaken world markets when it signalled that it might default on huge debts incurred after borrowing extensively to build those ambitious projects.
Thanks to the robust trade, tourism and transport sectors, the economy has since steadied.
“Residential prices have fallen maybe nine or 10 percent this year,” said Craig Plumb, Middle East and North Africa research director for Chicago-based investment management company Jones Lang LaSalle.
“We expect prices to go down further over the rest of the year,” saying the decline has “more to do with what is going on globally. Things like (falling) oil prices and the global nervousness with the Chinese economy slowing.”
“The Dubai residential market is very much affected by what’s going on in the rest of the world because a large number of people buying here are investors coming from overseas,” said Plumb.
“There is a negative sentiment largely driven by oil prices… It pushed stock prices down and pushed sentiment against the residential market as well.”
The city-state, one of seven that make up the United Arab Emirates, is the largest and one of very few markets in the region that has opened up to foreign free-hold ownership.
Plumb said prices are likely to fall for 12 more months, while forecasting the drop for this year at 15 percent.
London-based property consultancy Knight Frank has reportedly put the annual drop to June at over 12 percent.
Cluttons, another London consultancy, expects villa prices to lose up to seven percent in the second half of the year after dropping five percent in the first six months.
Signs of price softening had begun to show as a result of strict regulations introduced by UAE financial authorities to avoid a new bubble, including mortgage caps.
In particular, they put a cap on mortgage financing at 75 percent for a first purchase and 60 percent for a second one. This priced out of the market those who could not make down payments of 25 percent or more.
As a result, Plumb said, prices are not expected to nosedive as they did in the crisis.
“We are seeing a much more stable market and that is a sign of better regulation.”
Against that background, Cluttons said more than 40,000 units have been announced this year, with in excess of 20,000 to be delivered by 2017.
Ziad Chaar, managing director of Dubai developer DAMAC Properties, said “with 53 billion dirham ($14 billion) recorded transactions in the first six months… we are sure that this market is a good market.”
Chaar cited a growing population and healthy economic expansion, including a rising number of tourists and modern infrastructure, in addition to a stable exchange rate and political stability compared with a wider region in turmoil.
“If we did not know that this market is strong, and that there is a very strong demand, we would not have launched these projects,” he said, pointing to scale models of various luxurious projects.
One of the projects on display at Cityscape is Meydan One, which includes plans for the world’s highest residential tower, at 711 metres (2,333 feet) high.
Dubai is already home to the world’s tallest building, Burj al-Khalifa, with stands at 829.8 metres.
At foot of Meydan One, a 1.2-kilometre indoor ski slope is set to break Dubai’s own world record, Ski Dubai, which boasts a 400-metre slope.
Dubai’s Nakheel Properties, developer of Palm Jumeirah and the World Islands, announced that it aims to bring 10,000 units on to the market in the Jebel Ali area.
Savills, another British real estate consultancy, ranks the UAE as the world second-best country for residential investment, after only the United States.
It said Dubai’s market has “matured” and that softening prices are expected to pick up again in mid-2016, as the country prepares to host the Expo 2020 trade fair.