Friendships circles deteriorated over night and UAE police found more than 3,000 cars abandoned at the Dubai international airport as foreign nationals chose to flee the country and avoid the ensuing economic decline.
The sky was suddenly falling, and perhaps more than any other sector, the real estate market was ransacked. The building boom that had once fuelled Dubai’s rapid growth was crashing down – construction companies halted projects and banks put a stranglehold on lending.
Now, nearly two years later, the market that took a nose dive is trying its best to find firm footing and once more entire expats to start investing in real estate in the UAE.
The result is a market rippling with risks and rewards, but before expats dive in completely, it’s best to carefully weigh the options.
The freehold decree
Dubai revolutionized foreign perception of property ownership in the Middle East in 2002 when it passed the Freehold Decree. This progressive piece of policy gave foreigners the right to buy property, sell property and lease property in the Emirate at their own discretion.
The legislation was enough to lure large expat investment, and combined with various other ventures in the UAE an unprecedented economic expansion was underway.
“The law made Dubai a far more attractive proposition for expatriates as new developments aimed at foreign nationals began to spring up across Dubai,” explains Matthew Green, the Head of Research and Consultancy at CB Richard Ellis Middle East, one of the world’s leading commercial real estate advisors.
He clarifies that the inward investment promoted by the Freehold Decree helped launch multiple projects like the ‘New Dubai’ area, an extremely popular expat community made up of master-developments like the Dubai Marina, Jemeirah Lake Towers and Emirates Living.
Even the Downtown Dubai development, which contains the world’s tallest building – Burj Khalifa, and the Palm Jumeirah were examples of key Freehold projects.
Overall, the agreement acted as a catalyst for growth in construction, engineering, architecture and other related real estate services. Jobs opportunities materialized, both in low-level and high-level managerial positions, and Dubai became a prime destination where expats could move easily and make money in a tax free environment.
To buy or not to buy?
Dubai’s golden glory days proved short lived, however; and perhaps more than any other Middle Eastern destination the emirate was hit hard by the recession. Property values that had skyrocketed during the period of plenty were reduced in some cases by over 60%, and even the leasing market declined from around 40 to 50% from peak rates in 2008-2009.
Currently, the carnage has begun to clear and as is commonly the case in any sort of real estate aftermath, bargains have begun to surface. Homeowners are willing to sell their property in Dubai for a large loss, in some cases, as they battle to reduce their exposure to risk.
However, Green recommends, “an investment should only be pursued with a high level of understanding of the product and its position in the market.”
Dubai’s real estate market is still largely subject to uncertainty and investors remain exposed with little policy in place for protection if the going gets tough.
Green predicts, "the next six to twelve months will be subdued with an uptick of economic growth required to really get things moving in the property market again.”
He continues by characterizing the next few years as a period of transition; a slice in time that won’t evolve until investor confidence returns and banks begin to finance large loans once more. Sales values thus remain at a minimum, and expats should be cautious when considering purchasing property in Dubai.
Though construction on some massive projects continues and property established in areas with suitable amenities and facilities can still command high value, for the moment, expats moving to Dubai should sit tight and take advantage of a leasing market driven ever lower by oversupply and competition.
Article written by: Expat Arrivals.com