Dubai property boom shows strain as flippers get buyer’s remorse

House prices in the United Arab Emirates have soared, but some analysts say a correction could occur next year. 

If prices continue to rise until October, Dubai will break the record of 57 consecutive months of increase. © Natalie Naccache/Bloomberg 
The Dubai real estate market is showing signs of strain as it is set to surpass the duration of its longest bull market in a few weeks. 
Over the past five years, the astonishing growth in housing prices has mainly been attributed to the sales of "off-plan" properties that have yet to be completed, as well as luxury villas and townhouses that have already been built. Data from real estate information provider Reidin indicates that if housing prices continue to rise until October, the city will break the record of 57 consecutive months of growth. 
But rating agencies predict that with thousands of new houses being completed each month, house prices will start to fall early next year. Analysts and brokers say that those who intended to "speculate in real estate" are already finding it difficult to sell the unfinished properties they have purchased, as their goal was to resell these unfinished properties for quick profits. 
Data provider Property Monitor said that the oversupply of new homes "has begun to test the depth of demand". So far this year, 93,000 new homes have come onto the market. Demand from wealthy families for villas and houses is high, but 95% of the new homes are apartments. 
Credit rating agency Moody's said this month that it expects 150,000 housing units to be completed between 2025 and 2027, "which is likely to curb a significant rise in housing prices over the next five years." Moody's predicts that "housing prices will experience a moderate correction starting from 2026." Earlier this year, rating agency Fitch said it expected housing prices to fall by about 15%. 
Without adjusting for inflation, the current price per square foot is 25% higher than the peak in 2014. Part of the reason for this boom is that investors hope to benefit from lower housing prices than those in Western cities, as well as the expanding population of this low-tax central city. 
"Some niche markets will slow down at some stage," said Chris Whitehead, executive partner of Sotheby's International Realty Dubai, which specializes in selling luxury homes to ultra-rich buyers. "No real estate economy on earth keeps rising." 
Whitehead said he expected the high-end market not to be affected, but added that the high supply in the low-end market "is the risk we face in the future". 
Data providers say that one cooling niche market is property flipping. Property Monitor noted in a report last month that the resale volume of unfinished houses has "dropped significantly", and warned that "quickly reselling for profit before completion is not foolproof". According to Property Monitor's data, property flipping previously accounted for about one-third of the second-hand housing market, but this proportion dropped to 20% in July. 
An investor who is looking to sell an unfinished apartment on the man-made Palm Island in Dubai said that since listing the property for sale three months ago, he has not encountered a single interested buyer. 
Alec Smith, the head of residential sales and leasing at Savills Dubai, said that many speculative investors had been deceived by the "false promise of easy money". 
If investors hold onto the property until it is completed, the resale of the off-plan property works best, as it will then attract buyers who want to move in, he added: "I don't think all agents are honest with their clients and tell them this." 
Smith expects that in areas with a large number of new developments, prices will show "weakness", and frustrated speculative investors may rush to sell their apartments. 
Some brokers have warned that the slowdown in house transactions might be seasonal, as wealthy residents tend to go abroad for summer vacations, leading to a dip in business. 

Since opening up to foreigners at the beginning of the 21st century, the Dubai real estate market has experienced booms and busts. However, international investors say that due to regulatory reforms, they believe this time the Dubai real estate market will be more resilient.