Property prices in Dubai will take longer to rebound, as oversupply in the luxury market continues, according to Phidar Advisory managing director Jesse Downs.
While the minor oversupply of 5-10 percent in the Dubai property market is “manageable and actually healthy”, it poses a problem when the addition of new stock lies in the luxury sector.
“The problem really comes when you segment it by income and quality, and the oversupply is really in the premium market, which is the highest and the most competitive segment for development right now,” Downs told Bloomberg TV.
She explained that developers continue to build luxury properties, because investors continue to buy them.
“[Investors] forget that the medium income in Dubai is estimated about AED6,000 a month, which is completely in contrast with the supply that’s being developed. And on the scale that it is being developed,” she said.
The overall market slowdown could result in the delay of projects.
“As typical in Dubai, they just slow down construction schedules, so that’s probably what will happen again. And you’ll see a lot of projects taking up to 10 years to complete,” Downs said.
The MD added that real estate investment in Dubai has dropped due to a combination of factors, including low oil prices, US dollar exchange rates and GDP growth in key foreign buy markets such as Indian and the UK.
“There’s a lag effect between oil and the economy, and the impact on real estate. So there is usually about a two year lag effect between economic recovery in Dubai and the impact on real estate,” she said.