Dubai property is expected to attract a wave of Asian money as big pension funds are forecast to seek US$150 billion in global real estate investments.
CBRE found that Asian institutional investors are looking to invest more than $150bn in property markets around the world over the next five years as they look to increase their exposure to global real estate, with Dubai one of their potential targets.
“Dubai’s strategic location between the East and the West, and its rapidly developing real estate market is gaining strong investor appetite from Asia, specifically from China, Malaysia and South Korea,” said Nick Maclean, the managing director of CBRE’s Middle Eastern operation.
“During the past 12 months we have witnessed a significant increase in inquiry levels particularly focused on Dubai income producing assets, driven by an expectation of further growth in rental and capital values.”
According to CBRE, low interest rates and poor global stock market performances and a lack of opportunities at home are tempting institutional investors in Asia, which currently allocate an average of around 1.7 per cent of their portfolios to real estate, to increase this level in line with an average of between 6 per cent and 8 per cent for similar organisations in North America and Europe.
Acquisitions by Asian investors outside the region have grown from $2bn in 2008 to almost $9bn in 2012, focused on Europe, North America and Australia.
Traditionally, unlike other world cities, office blocks in the UAE are owned by private investors as global institutional investors have in the past shied away from a market they consider to be too risky. But that may change as the risk appetite of some investors increases.
Investors from around the world are watching to see whether Dubai is set to be the centre of a second property bubble as rates of property speculation in the emirate rise.
House prices in Dubai are growing at an apparently unsustainable rate and could face a correction over the coming 12 months, Jones Lang LaSalle said yesterday.
The report found that house prices in the emirate rose by an average of 17.9 per cent over the year to the end of August, while it estimates that population and employment growth increased by just 5 per cent over the same period.
The broker said the figures suggested a strong increase in the amount of property speculation in the emirate – one of the key factors blamed for the crash of 2008-2009 when prices eventually fell by as much as 60 per cent in some areas.
“Such rates of [price] increase cannot be supported by the fundamentals alone and suggest that speculative activity has increased,” the report said.
It added that Dubai Land Department data showed 80 per cent of property sales made during the first half of this year were to cash buyers and were made without mortgages.
“There is a danger that these cash purchasers may be short term speculators seeking to flip their units for a short-term capital gain in the same way as in the previous boom period,” the report warned.
In April police were called to Emaar’s sales office to quell unruly crowds jostling to buy off-plan villas, and in July the IMF warned that house prices in the UAE were rising too quickly, increasing the risk of a new bubble.
However, Jones Lang LaSalle concluded that although current price increases were unsustainable, it did not believe that property prices in Dubai were set for another crash. It said this was because there was currently more existing property in Dubai and the market was less dependent on pre-sales and better regulated.
“While we believe the Dubai market is currently seeing prices increase at an unsustainable rate, this does not represent another bubble,” Jones Lang LaSalle said.