Is there a need for a supply cap in Dubai’s real estate market?

Is there a need for a supply cap in Dubai’s real estate market?:

When the 2007 global financial downturn started in the US, there were talks about the “too-big-to-fail” banks that made the economy fragile. In the US context such failure was disastrous to the greater economy, and, therefore, the government stepped in to support and bail them out.

Now let’s look at the “too-big-to-fail” concept in the context of the Dubai real estate market. With the low barrier to the entry of players, many developers have been attracted to launch projects in Dubai. Capitalising on the off-plan model, they managed to grow in size in a short time. Launching projects on a monthly basis became a standard feature in Dubai, especially in the last few years. The trust in Dubai real estate laws and regulations as well as great off-plan deals boosted the supply of units in the market. But this means there is a systemic risk to the real estate system.

Apart from the abilities of developers, and their capabilities to take on these projects, there is the constant threat of oversupply. With more than 400 real estate developers in Dubai, the issue of oversupply is always there. Some of these developers have boasted a huge portfolio of off-plan projects and a failure to deliver would naturally impact the property market by hitting people’s confidence in off-plan. We were lucky to have the off-plan market revived and become attractive in the last few years given the affordability and flexibility in payments provided. We need to keep people’s trust in this model and thus there is a need to make sure that there are enough tools to make developers deliver on time and the quality promised.