Analysis of the Real Estate Market in Dubai - A Macro Economic Perspective

Dubai, the most economically active of the seven Emirates of the UAE has grown to be a major investment and trade centre in the Middle East. The foresight and the business-like manner in which the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum invested in infrastructural development of Dubai had indeed attracted the attention of the international investment community, which in turn responded with a steady inflow of FDI into Dubai economy over the years. The real estate sector has been a major beneficiary of this bold economic initiative. Investors from all over the World (Including those from the USA, UK, JAPAN, Saudi Arabia etc.) enjoyed a steady stream of high dividend yielding returns on their investments which was sustained until the economic crises which started immediately from Post George Bush tenure in the USA. According to reports from Dubai Government bureau of Statistics, the real estate sector steadily contributed about 22.5% of the GDP of Dubai Emirate (the biggest of such contribution from a single source). This trend remained constant until year 2008 due to the global economic crises which started in the USA real Estate sector and spread to all other federating components of the Economy.
A major collateral result of this was a strong decline in oil prices and the fall of the US dollar coupled with huge losses in stock markets. Among the after effects was evaporation of savings and liquidity of cash in the global financial sector, hence, investors lacked the capacity to invest and those with capacity were too afraid to invest. Thereupon, Dubai’s debt financing rely mainly on sales of properties and real estate assets i.e. meaning urgent needs for cash liquidity by investors who lost their purchasing power due to the crises. This resulted to excessive offers of properties for sale in the market (from the supply side) with unavoidable sharp drops in their prices and also value, but with poor reaction for purchases from the demand side, there by shrinking the profit in the sector in terms of margin and potentials. Consequently, a sharp decline in demand and in returns on investment in the Dubai real estate sector continued until recently.
A combination of factors in the Dubai economic management strategies supported by good public policy initiatives and capital injection from the central Government in Abu Dhabi, have all helped in witnessing an economic re-birth in Dubai again, resulting to an upward increase in the demand for big tickets items especially, real estate assets. This increase in demand had also caused a price increase in the market which had now jolted the sector to the extent that, developers and contractors alike are now scrambling for a piece of the action in the Dubai real estate market again, because of its sales potentials and the inherent profit expectations. Hence, supply is increasing accordingly and much to the joy of the financial sector in the UAE, especially in Dubai.