Property prices in Dubai have fallen by about 25% since peaking in 2015, according to a new report from property consulting firm Knight Frank, which found that Dubai, which is best known for being a "mecca" to the extraordinarily wealthy, was one of the worst performing cities in the world for real estate prices over the last two years.
Lower oil prices, weaker currencies in nearby countries (UAE's currency is pegged to the USD) and political turmoil in the Middle East have all contributed to the pressure on prices. Property development is a key part of Dubai's economy, so the fall in prices has had aftershocks throughout the city's financial landscape.
The city is also suffering from a glut, having built more property than they need under the impression that "if they build it, people will come." It was a strategy that benefited the city's government-linked developers over the past couple decades, enticing wealthy ex-pats from places like Europe, India, Saudi Arabia and Pakistan.
And the glut could continue to negatively affect prices for years to come. Dubai is one of the world's biggest ongoing construction sites, with nearly 1,200 cranes active across the city currently. Jones Long LaSalle estimates that 31,000 homes will be completed this year, far exceeding demand.
Craig Plumb, head of research for Middle East and North Africa at JLL, said: “The only reason the market hasn’t bottomed out is simply that there is so much new supply coming on the market."
Examples of the pricing pressure are clear. In the world's tallest building, a one-bedroom apartment with a view of the Persian Gulf cost about $800,000 in 2010. In 2014, it would cost about $1 million. Today, it's on the market for less than $550,000.
The World, an artificial group of 300 islands built off Dubai’s coast and completed in 2008, has only seen one of its islands fully developed. Development projects on the Palm Jumeirah, a palm-tree shaped artificial island, have also been put on hold.
Some locals that work in real estate have called for authorities to intervene in order to cut back on speculation. Five years ago, authorities doubled buying and selling fees to discourage speculation in the market. The government has already eased its residency policy, now allowing longer term 5 and 10 year residence visas for certain professionals. Dubai officials are also reaching out to potential investors in places like China and the U.S. to try and stoke interest in the market.
Meanwhile, developers are pushing payment plans or guaranteed rental income for investors as reasons to buy. In fact, they'll take just about anything.
Some, like Amr Aboushaban, head of investor relations at Damac Properties, believe that the market needs to shift from high end products to middle range products. He said: “Once these things change, there will be no issue of oversupply in the market; it will be an undersupplied market.”