Last updated December 26th, 2021.

Knowing where you shouldn’t invest is just as crucial as learning about where you should. Our strong belief is that you shouldn’t buy property in Dubai.

Occasionally, we enjoy writing articles like these. The internet is filled with real estate investors, developers, and marketers alike telling you where to invest. 

Getting advice about why not to invest is far less common. The reason is simple: no one makes any profit by suggesting that you don’t spend money.

Dubai isn’t the only place we’re giving the “don’t invest in…” treatment. Last year, InvestAsian wrote a similar piece on Brunei. It was widely-read with around 5% of the whole country’s population seeing it.

Real estate in Japan and Myanmar among several others also received a negative rating from us.

In the comment section of these types of articles, both foreign investors and locals often state their strong disagreement. Maybe they think they’re losing money from our advice.

 Or perhaps they already invested in Dubai and want to justify their decision.

They could even be acting out of truly genuine concern. Either way, we’re always glad to give an honest opinion here at InvestAsian. Here are three reasons why you shouldn’t buy property in Dubai.

 

Dubai’s Property Market During Recession

It’s amazing how people can forget the recent past so easily. The human brain generally isn’t good at remembering lessons from last decade or adapting accordingly.

Perhaps that’s one reason why recessions strike the same victims once every seven years or so. Most foreign investors, if they even learned a lesson in the first place, will surely forget by then.

Back in 2008, Dubai along with the UAE as a whole suffered worse than many other countries. Locals and expats alike fled as total economic meltdown occurred almost overnight. 

 

Dubai residents were in such a hurry to skip town, whether for debt or other reasons, that they abandoned their luxury cars outside the airport.

 

Why was the UAE’s financial situation, along with property prices in Dubai, affected so much? You can largely blame its non-diversified economy.

The real estate and energy sectors are typically hit harder than others during a recession. Of course, those industries contribute a significant amount to the country’s GDP.

The UAE did make small signs of progress towards economic diversification since the last global recession. Yet these gestures aren’t anywhere near good enough.

Dubai has focused on boosting its finance sector lately – certainly not the best industry during a recession either.

Today, construction and building activities are responsible for over 10% of the UAE’s total GDP.

Real estate meanwhile contributes yet another 7% to the economy according to the UAE government. But it’s very likely those numbers are understated.

Predicting a recession is difficult and we’re not trying to. With that said, the current global bull market in property, stocks, and nearly all other types of assets is now approaching its thirteenth year in a row.

The next recession may not arrive tomorrow, but absolutely will eventually.

Our point is: Dubai has a history of breaking apart, both financially and socially, during previous recessions. Do you truly want to buy real estate in such a market?

 

Chronic Oversupply Problems with Dubai Properties

Dubai’s population is barely two million people. As a comparison, that’s roughly equal to the size of Austin, Texas or Penang, Malaysia.

If you aren’t familiar with Dubai or its demographics, this might come as a huge surprise upon looking at Downtown Dubai’s impressive skyline filled with literally hundreds of high-rise office buildings and residential properties.

Many of them are practically empty though. Residential occupancy rates in Dubai now stand at between 30% to 40% with offices on the higher end of that range. Hotel apartments are even worse.

Weak occupancy rates are a major reason why property prices in Dubai are low by regional standards. Real estate in prime locations such as Dubai Marina and Dubai Internet City are only about US$4,000 per square meter (~$200 per square foot).

 

The sidewalks aren’t just empty because it’s hot outside. Despite Downtown Dubai’s famous skyline and rapid economic development since the 1990s, the city’s population isn’t very large at all.

 

We mentioned further above that construction is a top contributor to Dubai’s GDP. Policymakers, local and foreign businesses therefore don’t have the luxury of shutting down future projects until real estate demand finally picks up.

Such cooling measures would sink corporate revenue all across the UAE and force countless employees out of jobs.

Market interventionist tactics worked in countries like Singapore and Malaysia since they have other industries besides oil and property. On the other hand, Dubai only has two bad options to choose from.

Either the building boom must go on, in turn making oversupply issues in Dubai’s real estate market even worse, or a general economic crash must happen.

 

Persian Gulf’s Rising Political Tensions

It’s not saying much, but the Persian Gulf is one of the most stable and successful parts of the Middle East.

Property values in the region, from Dubai to Qatar, have consequently boomed following the Gulf’s apparently newfound stability.

Don’t take it for granted though. Historically, the situation hasn’t always been calm in the gulf. Tensions are heating up lately as well.

Geopolitical theater is at play in the region as Saudi Arabia and the UAE fight with Iran and Qatar for influence. Various militant organizations remain an additional wildcard.

Qatar was recently alienated from their neighbors due to claims of them secretly financing terrorist groups like Al-Qaeda and ISIS. Likewise, rhetoric between Iran and the United States have picked up once again.

Rising diplomatic tensions are arriving at a bad time too. Oil prices are still struggling to break $100 per barrel, down from their decade highs of $140.

Selling oil (and property!) is how most gulf economies make their money. Therefore, falling energy prices affect everything from the value of real estate in Dubai to consumer spending.

It wouldn’t take a full-blown war to heavily impact the gulf region’s economy either. Heated words, minor skirmishes, sanctions, and terrorist attacks have all been sufficient to cause destabilization in the past.

 

You Shouldn’t Buy Real Estate in Dubai

Hopefully you understand why we don’t suggest investing or buying property in Dubai at all.

There are too many factors that could go wrong with making a property investment here – many which have already gone wrong during past recessions.

Geopolitical problems, low occupancy rates, weak corporate profits, falling rental yields, and declining oil prices could each set off a bigger crisis with no warning.

You may think the fears we’ve expressed here are overblown. Of course, we’re just pointing out historical weaknesses along with the fact that few things have changed since the 2008 crisis.

The fact still remains: nearby real estate markets in other countries boast greater potential than Dubai’s. Why not invest in those places instead if your primary goal is attractive returns?

Some countries in Asia have skipped recessions for more than two decades. Likewise, capital appreciation prospects and rental yields are significantly higher elsewhere in the Middle East and Gulf region.

If you enjoy Dubai and want to own a second home here, that’s always a good reason to buy offshore property. We aren’t telling you where to live if you’re simply making a lifestyle purchase. 

Property prices in Dubai could even possibly rise in 2022 and beyond. We’re not saying you can’t make money through becoming a real estate investor here. That’s especially true if you’re making a long term investment.

Specific real estate sectors like the hotel business and tourism industry in Dubai also show greater promise than others. 

Nonetheless, residential and commercial properties in the Middle East’s supposed “top business hub” aren’t included among the region’s best investment opportunities.

You shouldn’t buy property in Dubai if your main goal is profit. Don’t be fooled by seemingly attractive rental yields, as occupancy rates are low in practice.

Meanwhile, numerous geopolitical and economic risks will continue harming the Dubai real estate market’s long-term appreciation prospects.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Southeast Asia. Reid manages the world's first frontier market real estate fund and has been featured in publications such as Forbes, Property Report, South China Morning Post, and Seeking Alpha. You can learn more about him here.

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