Behind the sizzle of Dubai home boom, key vulnerability persists

A general view of residential skyscrapers and a beach in Dubai. Even as the market stages a dramatic recovery, pockets of underperformance suggest demand is still insufficient to soak up the excess supply.

It was a year of milestones for Dubai’s property market even before the emirate kicked off its $7bn Expo this month.Average home prices are rising at the fastest pace since February 2015, with transaction volumes surging nearly 77% in August from a year earlier – up over 56% when compared with the same period in 2019, before the pandemic hit, according to real estate adviser CBRE Group Inc.But it’s the legacy of chronic oversupply that could determine how long the boom will last. Mohamed Alabbar, chairman of Dubai’s largest developer Emaar Properties PJSC, has warned that the current industry exuberance could come back to haunt Dubai as it now exits a seven-year price downturn made worse by its property glut. “The real estate market is a very funny market,” Alabbar said in an interview. “There is oversupply. People get excited. Customers start taking the inventory and then everybody starts building again.”The issue briefly vaulted near the top of the government’s agenda last year, when a committee was set up to manage supply and demand, while property developers temporarily halted new projects. The sentiment has shifted, however, as Dubai’s economy reaped the benefits of a faster reopening.Even as the market stages a dramatic recovery, pockets of underperformance suggest demand is still insufficient to soak up the excess supply. Average rental rates edged lower in the first eight months, falling 2.7% from the same period last year.Apartment rents meanwhile dropped 5.2% at a time when developers are adding to the supply of homes in the city. About 24,595 new homes were completed in Dubai so far this year and the construction of another 24,700 is expected to be finished by the end of 2021.“Right now, I think the supply situation is good,” Alabbar said, adding that Emaar is on course to achieve record sales this year. “It’s natural businessmen will start again and they will flood the market, but that will take few years.”