Your cab driver’s got one. So does your mother-in-law. Your best friend too. Everyone has an opinion on Dubai house prices.
Here’s mine: I see Dubai house prices softening this year. And here are 4 signals that are flashing red.
#1: Quantitative Tightening
Over a decade of quantitative easing has finally come home to roost. Printing money ad infinitum led to excess liquidity, and plenty of free lunch. But we all know there’s no such thing.
At a recent event JPMorgan Chase CEO Jamie Dimon, the world’s #1 banking CEO, said “Several aspects of quantitative easing programs “backfired,” including negative rates, which he called a “huge mistake.”
Central banks “don’t have a choice because there’s too much liquidity in the system,” Dimon said, referring to the tightening actions. “They have to remove some of the liquidity to stop the speculation, reduce home prices and stuff like that.”
#2: Interest Rate Increases
If by now you haven’t got the message that the Federal Reserve bank of the United States is increasing interest rates by at least another 2% this year, what rock have you been hiding under?
Anyone thinking the impact of this will simply be a few additional hundred dollars a month on a mortgage repayment, might want to reconsider; Car loans. Personal loans. And credit card debt. It all adds up.
The argument that prices are shielded by cash purchases in Dubai’s luxury residential real estate segment, isn’t good enough. The majority of middle-income homeowners have mortgage financed their property purchases.
How long can the average family contend with the increased costs of consumer goods, loans and fuel?
Expect a chunk of middle-income households to be tipped into debt burdens they can’t comfortably keep up with. To reduce their monthly obligations, they’ll sell properties.
That will introduce more supply to the market at a time when developers are in full swing, putting downward pressure on prices up and down the price spectrum.
#3: Replacement Costs
When the cost of buying a secondary market home is equal to or less than the cost of building the same home from the ground up; don’t think. Buy the home that’s ready to move into. Immediate utility. No-brainer.
China’s zero-covid tolerance policy. Inflated costs of labour and materials. Broken supply chains. All have compounded the cost of building, causing the price of new homes to increase. That’s lifted demand for ready homes. Values have risen.
What happens as those costs ease? US President Joe Biden’s plan to fix supply chain issues and reduce trade tariffs with China are designed to tackle inflation run amok. And with China finally reopening, raw material prices are going to drop.
Expect the cost of construction to ease, dragging down the value of ready homes.
#4: King Dollar and Prince Dirham
I’ve said it time and again.
As US interest rates increase, so too do the values of the US Dollar and the Dirham. Causing demand for Dubai housing to ease, and prices to soften.
The contention that many investors aren’t deterred by higher purchase costs, ignores fundamental economic rules of thumb. That investors behave rationally.
Bubbles Be Poppin’
Those who know me, know that I’ve had skin in the Dubai real estate game for the past 20 years. I believe in Dubai. Its resilience. Its leadership. The proactive nature of its residents. And it’s X-Factor. That Wild Card that continues to pull demand.
If there’s one thing I’ve learned about property investment, and Dubai in particular; you make your money when you buy. It’s all in the timing.
This week I closed my Dubai property portfolio. Sold my investment properties and equities.
Volatile, speculative asset classes like Cryptos and NFTs are already collapsing. Equity markets are being challenged. Real estate isn’t immune. It’s merely a matter of time.
I expect values to soften as we exit 2022, or by early 2023. But rather than a hard crash, we can look forward to a soft landing. I’ll be ready to dive back in when buy signals flash green again. Then I’ll buy a very specific property at Serenia Living on the Palm Island Jumeirah, where demand is inelastic.
An AI Implementation Strategist accredited by the prestigious MIT in Cambridge, Massachusetts, Ayman Alashkar also has a BSc in Mathematics from the world-renowned Queen Mary College, University of London, and an MSc in Real Estate Investment and Development from the University of Reading (UK). With +20 years’ experience working in real estate, banking and artificial intelligence, Ayman is the founder and CEO of overwrite.ai.
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