Generally, the real estate sector has four key cycles. The peak is generally defined as the time when real estate is hot, and people are in a rush to acquire; demand is high and thus prices increase. Banks generally tend to loosen lending restrictions during a peak time so as to help fuel purchasing.
With the peaks come periods of contraction when the market is pulling back. Due to other economic factors and events, people want to liquidate assets, and a period of selling begins. Generally, new construction largely ceases, unemployment increases, prices are slashed to sell quickly, properties take longer to sell, and the market actually becomes more affordable and accessible.
In the third cycle, a trough is what we might otherwise call a bottoming out; essentially a “low” is reached and prices begin to stabilise. Lastly, we welcome the expansion that follows as that means housing prices rise (and thus value for those who own), construction surges, unemployment decreases, interest rates rise to stave off further borrowing, and overall, affordability decreases.
You will recognise how Dubai’s property scene fits into certain parts of these cycles, albeit not entirely. For starters, construction has been constant, and actually increasing, even in periods we can define as contractions and troughs. The recent period is the only one that has seen a marked decline in property prices, although inflation has run high for an extended period.
These characteristics run antithesis to what is typical of the properly defined cycles in real estate. While new construction and infrastructure spending is necessary to host the Expo in 2020, some other initiatives will have to follow to support the amount of new supply that will enter the market over the next couple of years.
What Dubai has witnessed for the past couple of years is certainly a contraction and prices have come down quite a bit across many communities. While in theory, this should encourage many to purchase, especially those who otherwise couldn’t afford to, Dubai’s real estate transactions in 2018 have not reached the levels they have in previous years.
Although transactions by volume have declined, there have been other achievements such as the expansion of affordable housing, financial support from developers such as rent-to-own and post-payment plans, as well as leading numbers of projects coming to fruition faster.