It’s encouraging to hear that property consultancy Knight Frank has named Dubai the “hottest global property market” of the moment. And it’s also encouraging to see Dubai back on its feet after the financial crash of 2008. But behind the scenes, a number of worrying developments have been building up steam.
Property prices across Dubai have skyrocketed in recent times. The National reports that there’s been a 38-percent rise in property prices over the last year. Whether you’re renting or buying, any new contract you sign is going to set you back far more than it would have done 12 months ago.
When you bring real numbers into the conversation, the effect is dramatic. Take my two-bedroom apartment in Tecom as an example. When we signed up almost a year and a half ago, we agreed to pay the landlord Dh78,000 per year. Now, an estate agent friend of mine says the flat is worth more than Dh110,000 per year.
Meanwhile, the significant other’s apartment (also a two-bed in Tecom) was signed for Dh70,000 per year. Upon renewing her contract a few months ago, though, the agent told her that the same apartment a few floors up went for Dh88,000.
Sure, British bank Standard Chartered might say that Dubai’s latest property bubble is much more sustainable than the one that burst in 2008, but I’m not buying that for a minute.
It’s all great news if you’re a landlord, of course – you’re getting much more out of an investment than you were a couple of years ago. It’s also great news for those who own the places they live in. A friend of mine bought a Shoreline Apartment on the Palm last year and the value of the property has gone up by about a third. If he sells at the right time (which I’m betting he will), he’ll make a serious amount of cash.
Unfortunately, the expanding property bubble is bad news for pretty much everyone else – the majority of people living in Dubai, in fact. While the cost of renting has gone up hugely (particularly in previously reasonably-priced areas like Tecom, Jumeirah Village Triangle and Sports City), salaries haven’t increased at anything like the same rate. Based on purely anecdotal evidence from friends and acquaintances, salaries are staying flat for the foreseeable future. If that’s not enough to sway you (understandably), just realise that salaries certainly aren’t going up at a rate of 38 percent per year.
As far as I can see, this leaves most people with three options. The first is to move to a more out-of-the-way area where property prices haven’t shot up like a firework. However, the number of these areas is shrinking by the day. Even Mirdif’s prices have spiked in recent months.
The second option is to hang on to your current place as long as possible. This works because, when you’re renewing contracts, landlords are only allowed to raise prices by a certain amount every year. That said, landlords are increasingly turning to nasty methods in order to get people out. I recently had a letter through the door telling me that I had broken a toilet that hasn’t worked since day one, and I was in breach of contract because of it. My suspicion is that the landlord wants to find any excuse not to renew my contract so that he can draw up a much more lucrative one with some new tenants.
The third option is to leave Dubai altogether, and I suspect it’s one that people will soon start considering. After all, why do young professionals come to Dubai in the first place? They either come for a taste of the good life, or they come to load up their bank accounts for future endeavours. In either scenario, if you’re being priced out of living anywhere half-decent, working in Dubai becomes a much less attractive proposition. You’re going to spend most of your money on rent and the steadily rising cost of living in general, meaning there’ll be little left for the good life or for saving. You’ll essentially be working to survive, which you can do just as easily at home without the hassle of relocating to a foreign country.
You might say, “So the city will miss out on however many thousand young professionals flying in – who cares?” But Dubai should care. The UAE economy is very much dependent on small and medium-sized businesses – exactly the types of organisations that hire young expat professionals. In 2011, SMBs made up 60 percent of the country’s GDP, according to the Ministry of Economy. These SMBs can’t afford to pay huge salaries to cover such ludicrous rental rates. Indeed, these businesses thrive on employing fresh-faced graduates and getting them to do jobs way above their pay grade.
The graduates are fine with this, because they’re getting good experience, and probably a better salary than they would in their home countries. But if they’re having to spend more than half of their salaries on rent, resulting in negligible real wages, they’re not going to bother coming over here. Under this scenario, SMBs will either bankrupt themselves trying to retain talent, or else fold because they can’t get any talent in the first place. If enough SMBs fail, the local economy will slide, and it’ll be the direct result of an out-of-control property market.
Who’s to blame for all of this? There are several theories. A quickly growing population would certainly explain the rises, and most estate agents will tell you that it’s simply natural inflation. However, the more switched-on ones will tell you that it’s a case of landlords sensing a change in the market and trying to cash in. It’s an endless feedback loop wherein landlords see other landlords raising their prices, thereby influencing more landlords to raise even further. And so it goes.
Blame shouldn’t really come into it, though – what’s needed is action. So much of Dubai’s success depends on a healthy property market that the government cannot stand idly by as prices become manipulated by greed under the pretence of “natural inflation”. The current law that states renewed contracts can only be raised by a certain amount every year is a good start. But Dubai needs to take this further. An independent regulator needs to decide on real housing values – using every shred of data it can get its hands on – and apply sensible limits to what people can charge for renting out their properties.
It sounds terribly socialist, but the free market can sometimes spiral out of control, as evidenced by what happened in 2008. To avoid a repetition of those dark times, the government needs to step in to ensure that greed doesn’t get the best of this city.