Building Up Dubai

Despite recent volatility, Dubai’s real estate sector is proving to be more resilient than ever.

By Nader Museitif

Everyone loves chatting about Dubai’s real estate sector, even those who don’t actually live in the city, which is now synonymous with outlandish mega projects and glittering skyscrapers. The desert continues to be pushed back and replaced with sprawling residential and commercial undertakings that target the city’s thousands upon thousands of customers, employees, and residents. And trying to keep track of the latest shopping malls, restaurants, and other leisure hotspots is almost an impossible task.

The subject is especially relevant now given the recent decline in real estate prices. This year has witnessed a slowdown in buying activity due to several factors. Some related to local demand control like increasing fees and mortgage down-payments. Others related to global dynamics like inconsistent global growth, drop in oil prices, and therefore GCC investor sentiment, and falling currencies against a strengthening dollar in markets like Russia, Africa, and Europe.

After reaching unprecedented lows in 2009, the market started a steady improvement in 2011 and 2012 and went on an accelerated boom trend in late 2013 (after Dubai won the Expo 2020). By 2014 it was safe to say that the market made up its previous losses and reached new highs in some segments. This year has seen varying degrees of correction. All this is called volatility. And guess what? It’s normal.

A developed market will always feel the swings of the global economy. Yet a smart market will optimize its exposure to global forces. The UAE was dealt a heavy blow during the 2009 crash and Dubai’s real estate was probably hit hardest. But the city’s engine never stopped; infrastructure projects continued, with highways, bridges, metros and trams popping up all over the place. Tourism was promoted and millions of visitors took advantage of falling prices. The market rebounded faster than most others. The short-term investors made a fortune, and so did the long-term endurance investors who entered pre-crisis.

Cycles will occur indefinitely—even in officially non-capitalist markets. Dubai’s cycles are no different; if anything they might be stronger given the state of growth it undergoes and the speculative nature of investors. But the economic engine that kept rolling post 2009 is bigger and now supposedly more resilient to shocks. Cycles will continue but they may be headed towards a range and an equilibrium that rewards long-term players and, at times, the short-term return hunters.