15 August 2013

Dubai property market: The dilemma of European investors

Prior to the property crisis of 2008, Dubai attracted ample investment from Europe, North American as well as Asia. When the property bubble burst, many investors lost millions overnight and many multi-billion projects were put on hold and many high profiled projects were cancelled. Such strict measures taken by Dubai government forced many European investors to leave the emirate with a heavy heart.

Even though Real Estate Regulatory Authority (RERA) of Dubai was founded in 2007, yet it lacked the basic ability to handle a crisis like the global economic meltdown of 2008. Many experts at Bayut.com, myself included, who have studied Dubai property market closely, believe that RERA has matured and is now in a better position to handle the emirate’s very robust market yet European investors are still shying away from entering the market with any major investment. Although Dubai government too has gone to great lengths to introduce investor protection laws yet major investors from Europe seem keen on practising caution.

Europe is undergoing an economic crisis of its own where realty sectors in many countries are struggling. This has led them to be incredibly selective in their investment where the majority of their investment capital is going into luxury real estate in tourist attractions like Spain and Italy. Dubai is a mega tourist destination by anyone’s standards yet these investors have kept it at an arm’s length, mistaking the recent recovery for another bubble.

The recently found rapid recovery has elicited warnings from the International Monetary Fund (IMF). The recent ‘boom’ of Dubai realty sector, I believe, has much more solid foundations and thus cannot be compared to the property bubble of 2008.  Dubai government has taken concrete measures to try and build investor confidence. The Tanmia Initiative, which was introduced in 2011, is one such step which paved the way for resuming development work on at least 300 halted projects back in 2012.

Despite this and many encouraging steps of Dubai government, European investors seem disinterested. The only European investors active in Dubai property market are British who spent AED 4,000 million in buying property in Dubai during H1 2013. Other than that, all major spenders in Dubai are Asians. Indians, not surprisingly, were the top investors who spent AED 8,000 million in Dubai property sector, followed by Pakistanis who spent AED 3,000 million.

Dubai has also been a major recipient of funds flying in from the Middle Eastern states. Arab Spring played its role in fuelling Dubai realty sector because of the simple fact that it offers a safe haven to all the investors from the trouble hit neighbourhood states. All of these are some natural causes which have driven both the demand and prices of property in Dubai up yet for some reason, the situation still seems murky to most European investors who have opted to sit this one out.

Author: Shaista Zulfiqar, Senior Communication Manager at Bayut.com