Dubai Expo 2020 seen boosting economy, but some fear a bubble

Dubai’s winning bid to host the Expo 2020 is forecast to boost trade, tourism and property prices – but some analysts warn that another real estate ‘bubble’ is in the making.

The emirate today won the right to host the world exhibition in seven years’ time, having fought off competition from rival bids from cities in Russia, Turkey and Brazil.

Dubai is set to spend almost $8.1 billion on infrastructure projects ahead of the Expo 2020, with total investments including those from the private sector expected to exceed $15 billion.

Mohammad Kamal, director of equity research at Arqaam Capital, said trade and tourism are likely to be the “primary beneficiaries” of Dubai’s Expo win.

“[Bigger] tourist numbers would engage the private sector via the hospitality industry… as well [as bringing] an increased footfall at prime retail destinations such as Dubai Mall,” Kamal told Al Arabiya News.

Kamal forecasts a “broad-based appreciation of property prices” following Dubai’s Expo win, as well as higher rental yields.

Matthew Green, head of research at property services firm CBRE, said that the cost of living and rents is already on the rise in Dubai.

“Residential rents are up about 23 percent over the past year alone,” he told Al Arabiya News.

Green said that the positive Expo 2020 bid could see this trend continue.

“In the short term, we can probably expect to see that continue… The core sectors are already doing well. Tourism, retail, trade, manufacturing, they’re all performing very very well, and giving Dubai a solid grounding for growth.”

Jackie Johns, general manager at real estate agency Dubai Luxury Homes, warned that property owners may be pinning their hopes on the Expo, bringing unrealistic expectations.

“The sellers are waiting for the Expo to increase the property prices. My fear is that their expectations might be a little bit too much, and my worry is that the market might stagnate a little bit until the buyers get an appetite again,” said Johns.

“We did see some huge growth, but the governments were doing everything possible to slow that down, so that we didn’t create a bubble, which they’ve done really effectively”.

Others however said Dubai’s property market was indeed like a bubble, suggesting that unsustainable real-estate price rises would eventually lead to a crash.

“If things continue the way they are most probably we’re heading towards a bubble. The strong growth rate we are seeing... is not sustainable,” said Saadallah al-Abed, a manager at Colliers International.

“Prices grew at 34 or 35 percent in less than a year, and that is not sustainable by any standards,” he added.

“A lot of what’s happening now with the whole Expo announcement is all sentiment, because the fundamentals or the demand is not going to change overnight… but it’s just the sentiment that will change the market.”

Al-Abed pointed to likely rises in property rents within Dubai.

“Landlords will put their property back in the market at much higher prices than they were,” he said.

“There might be some buyers thinking that [prices] might increase further, but at the end of the day after few months, or maybe a year, the market will stabilize, because the Expo is a good seven years from now.”

Others disagreed that there is a ‘bubble’ forming, saying that Expo 2020 is likely to make people think long-term about investing in Dubai.

“[Expo 2020 in Dubai is] good, because hopefully the people who decide to buy are buying with a more long-term view,” said Richard Paul, head of UAE residential property valuations at Cluttons.

“Whether or not it will cause another bubble, I doubt that… Hopefully it’ll just a catalyst for stable growth in Dubai over the next seven years,” he added.

Mazen Irsheid, head of research at United Financial Investments in Jordan, pointed to another factor behind the expected economic uplift in Dubai.

“Foreign investors look for stable locations. Even if Dubai did not win the Expo 2020, Iran’s interim nuclear deal will attract foreign investors to Dubai,” he said.

“We have seen the rise in stocks [in Dubai] especially within real estate and banking sectors… this happened over the past few days,” he added. “The Iran deal… presents a geo-political stability which would allow Dubai to go forward with other development and projects.”