Dubai Launches New Real-Estate Boom
October 16, 2013 - Dubai
Thousands of apartments still sit vacant in Dubai, the wreckage from a massive property bubble that burst in this tiny Persian Gulf emirate only five years ago. The unlikely response: Developers are moving ahead with billions of dollars in new projects.
A new boom has begun in the emirate, which became known for its grandiosity during the bubble by building the world's tallest skyscraper and a palm-shaped development jutting into the sea. About 45,000 units are in the supply pipeline, according to Jones Lang LaSalle.
Private and government-owned developers have unveiled billions of dollars in new projects in recent weeks including a new island with a 690-foot Ferris wheel and a thicket of residential towers surrounded by freshly-dredged lagoons.
The new boom is being fueled by strong demand from investors attracted to the emirate's political stability and haven status in the Middle East.
Apartment prices rose by 42% in the 12-month period ending Sept. 30, according to a recent report by Asteco, a local brokerage.
At a regional real-estate conference last week in Dubai, investors came close to fighting to make bids on a new development, even though many of them conceded they didn't know where the development would be.
But some analysts worry a new bubble might be in the making. They note most of the investors are paying all cash, which is reminiscent of the last bubble when most of the buyers were short-term speculators hoping to flip the units for a quick profit.
Also, prices are rising faster than Dubai's population. Jones Lang LaSalle analyst Craig Plumb predicts prices will keep rising "for some time" but called the rate of growth "unsustainable."
To be sure, the development frenzy isn't as heated as it was in 2008, at the height of the last boom, when 54,000 units became available for sale. That is more than three times the current pace for 2013, analysts say.
Also, this year, authorities in Dubai have tried to curb speculation in the property market and so-called flippers, who helped inflate prices before the global financial crisis. For example, the emirate this month doubled the fee it charges on real-estate sales to 4% from 2%.
Investors say Dubai will continue to attract strong demand in a dangerous region. "It's relatively peaceful and Dubai tends to benefit from the conflict from elsewhere," says Nitin Kalwsani, an Indian national running a trading business in Dubai who was looking to buy a villa.
"They used to take it to the U.S., but I think after Sept. 11, Muslims don't want to invest in the U.S."
Dubai has an unusual housing market because less than 20% of its population is made up of native Emiratis. The rest mostly of expatriates from the Indian subcontinent, Europe and the rest of the Arab world.
The last boom lasted about six years and collapsed after the onset of the global financial crisis. Government-owned Dubai World, the holding company that owned Nakheel, one of the largest developers, nearly defaulted on its debts in 2009 and had to restructure its financing.
Dubai eventually was promised a $10 billion bailout from Abu Dhabi, the capital state of the United Arab Emirates [...]. Via WSJ
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