Dubai real estate needs a reality check

Back in the 18th century, David Hume raised the problem of induction, which basically stated that all of our reasoning is based on the assumption the future is likely to be similar to the past.

- BY SAMEER LAKHANI

If asset bubbles formed and subsequently led to a collapse — creating a price output dislocation every time in the past — then it would likely happen again.

It is interesting to note that while there have been an increasing probability of a price and rental correction in the Dubai property market in the last year, the commentary shifted decisively after a Fitch report, with most analysts stating that a “moderation” was now imminent.

Subsequent data on rentals in most areas as well as price drops in some seem to have confirmed the feeling that, probabilistically, price movements are likely to be lower rather than higher for the next year.

Drop in rental volumes and values

Rental volumes as well as values have started to drop in a few key areas, albeit in single digits in most cases as newer units come on stream, suggesting that prices may soon follow suit. (In the offplan segment, as well as in certain ready markets, there already seems to be a correction underway).