They point out that as the Dubai market is still an emerging real estate market it is likely to experience more shorter peaks and troughs than more mature markets.
Residential house prices have increased by more than 22% over the last 12 months and are increasing at an unsustainable rate and may see correction over the next year, according to a report by property consultancy Jones Lang LaSalle.
It suggests that billions of dollars of government real estate projects have triggered a buying frenzy and stock market bull run that has caused concern globally with the International Monetary Fund expressing concerns.
‘The rate of increases seen over the past year is indeed unsustainable. While residential prices and rents will continue to increase over the next 12 months, the rate of increase will decline somewhat,’ the report says.
It points out that the increase has been driven by speculative buying, the same scenario that led to soaring prices before the crash of 2008 and such rates of increase cannot be supported by the fundamentals alone.
Faris Mansour, director of Mubadala Pramerica Real Estate Investors, told the annual Cityscape property fair that Dubai’s property sector will hit another slump in 18 to 24 months.
‘There is no reason why as an emerging market we should expect there to be 10 year real estate cycles. Emerging markets move in short, sharp cycles reflecting the movement of capital, as proven over the years around the world. We should expect that to happen here as well,’ he explained.
‘And that’s not to say it will fall necessarily as it did before. But it will fall, it will correct and this is something we should all expect to happen and I expect it to happen in the next 18 to 24 month as capital becomes more expensive globally,’ he said.
‘The massive use of capital at emerging markets will eventually raise the cost of capital over time. That cost of capital will have a direct effect on real estate,’ he added.
Robert Lee, chief executive officer of Bahrain Bay said higher property price increases were happening in markets such as Sydney, Hong Kong and Shanghai and Dubai was simply benefiting from a global phenomenon but a correction would come.
‘This is where we are and I think in the next year or two we’ll see a definite correction in prices. Real estate, with all due respect, is a cycle business,’ he added.
But not everyone believes that speculation is rife. Miguel Guadalupe, chief operating officer at Pacific Ventures, which entered the Dubai market after the slump of 2008, said it was seeing end users rather than flippers.
He said feedback, including from other developers, was that they were not merely property investors but families who wanted to live in Dubai.
Jammal Hammoud, chief executive officer of...
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