Global Property Guide downgrades Dubai

Gross rental yields on residential property in Dubai have dropped to an average of 5.52%, significantly down from an average of 7.5% a year ago, according to the latest Global Property Guide research. As a result, the agency downgraded its investment rating on Dubai residential property from 3 stars (neutral) to 2 stars (negative).
Dubai’s gross residential rental yields have dropped significantly since last year’s Global Property Guide survey at www.globalpropertyguide.com .
Gross yields are now an average of 5.5%, significantly down from an average of 7.5% a year ago. Lower-end apartment gross yields have dropped by 3.5% from 10.2% to 6.6%. This is largely because prices have risen so fast.
Since the last rating action in December 2007, residential prices in Dubai have risen by an amazing 75%.
At these levels, Dubai is less attractive than it was previously, as an investment property destination. Gross yields of around 5.5% are to be expected in countries with very stable housing markets, and very large rental markets, especially where there are tax subsidies for investment in new housing. In such countries, such yields levels may represent stability.
However, the Global Property Guide said it “cannot see a strong investment case for buying property at 5.5% yields in Dubai, due to the significant supply overhang.”
Dubai has many attractions: a fast-strengthening position as a regional hub; strong immigration by knowledge workers; and, significant control over new supply by the government. But Dubai also has an enormous amount of new supply. The new supply coming onto the housing market is clearly slowly changing the balance between owners and renters. This seems likely to lead to a fall in prices.
“The government may do its best to stabilize the situation, but we believe the imbalances are simply too strong to sustain present-day prices,” the survey said.
“In the long run (5-10 years) Dubai will be continue to be very attractive to businessmen and investors, because of its location on the long-haul air route between Asia and Europe, key location in the Middle East, and proximity to Iran, Iraq, India, and Pakistan. But in our opinion Dubai has somewhat overbuilt, from a medium-term perspective. We expect price-falls over the next 2-3 years.”