Dubai property: demand greatly exceeds supply

A friend just got a demand for a 37% rental increase in Dubai this week, and paid it as there was no cheaper alternative. Similarly if you want to buy a one-bedroom flat in the re-sale market there were none at the last inspection of the classified ads.
United Arab Emirates: 15 minutes ago

This pattern is repeated in most sectors of the Dubai market. Buying off-plan re-sales is rather different; there are still many greedy speculators sat on partial payments whose price expectations are very ambitious. But of course you can not actually live in an off-plan apartment.

Indeed, the crux of the supply and demand equation in Dubai is that most building programmes are running a long way behind schedule. Nakheel is promising a definitive timetable for delivery 'within four weeks' but buyers in the Jumeirah Islands villa project have been annoyed that their moving in date of this month is now October, or it was this week.

Delays on delivery are not new in Dubai, but waiting times are getting longer. The Meadows 3 and 4 came in two months late just over a year ago, now slippages of more than six months are the norm.

This adds to the pressure on the existing housing stock. Last year some 250,000 new residents moved into Dubai. Now even allowing for the fact that perhaps only a quarter needed upscale housing, this still amounts to more than 60,000 people in need of a home.

Now if a new housing project is late those people still have to live somewhere. That adds to the competition for the existing housing stock and allows landlords to jack up the rental rates. Actually the market does this; landlords just pick up the cheques.

Higher rents mean that yields are better for existing home owners, and make property investment more attractive therefore boosting demand for homes and house prices. Meanwhile, those in rented accommodation get fed up with rising rents and go and buy something.

This is the supply and demand dynamic of a rapidly growing population like Dubai. Those who have hoped for a sudden oversupply of property have been very disappointed so far, and the day of oversupply keeps on getting delayed, just like most of the actual projects. This is no surprise as one is partly the cause of the other.

Under this kind of virtuous investment cycle house prices will continue to rise until the market overheats, and residents can not afford to live in Dubai.

However, in Europe and other parts of the world people are used to living in much smaller and crowded accommodation, and it could be some time before Dubai housing comes close to a true crisis point; new supply will therefore relieve pressure rather than dampen the market, and is certainly not about to crash it anytime soon.

Until that distant crisis point, the supply/demand equation will push rents and house prices higher and higher; and the recent arrival of local wage and consumer price inflation can only enhance this effect further.

Ameinfo