By Oliver Finn Every asset class goes through boom and bust cycles and real estate is no exception to this. Similarly, supply and demand can greatly influence the price of the asset class. When there is a massive supply and lower demand for an asset, prices tend to fall and vice versa.
This fluctuation in the value of real estate can have far reaching consequences for different parties involved in the real estate industry whether they are real estate professionals, property owners, real estate agents or property developers. Real estate buyers will become more rare and picky and real estate agents have to work harder to attract those buyers. Similarly, construction will be badly affected due to oversupply and the rental market will also be affected.
All this is great news for real estate buyers as they not only have more options to choose from but have to pay lower prices to buy real estate properties but not so good news for real estate developers and agents. If you are interested in learning how oversupply of real estate properties can impact the real estate industry as a whole, this article is for you.
In this article, you will learn about six ways in which oversupply of real estate properties can negatively impact the real estate market.
Table of Contents
6 Ways Oversupply Can Impact Dubai’s Real Estate Market
- Decrease in Property Values:
- Challenges For Rental Market
- Financial Strain On Real Estate Developers
- Impact on Construction industry
- More Competition Amongst Real Estate Developers
- Investor Confidence
6 Ways Oversupply Can Impact Dubai’s Real Estate Market
Here are six ways in which oversupply can impact Dubai’s real estate market.
Decrease in Property Values
There is an inverse correlation between demand, supply and prices. As the demand for real estate properties goes up and supply could not catch up to the rising demand, the prices rise. On the flipside, when the supply is higher than the demand, prices tend to fall.
With more properties listed for sale on real estate platforms and fewer buyers interested to buy these properties, expect the prices to fall drastically. Real estate owners will be forced to reduce the prices in order to sell their properties.
Challenges For Rental Market
Oversupply can also impact the rental market. With tenants having more options to choose from, tenants can afford to be more demanding and picky. This makes it tough for landlords to find tenants for their properties, which in turn increases vacancies.
With rental vacancies and options to choose from, renters will be in an aggressive position while landlords will have to be in defensive mode. They might even have to lower their rents to fill in those vacancies due to the oversupply of rental properties.
Financial Strain On Real Estate Developers
Economic slowdown and recession can force real estate property owners to sell properties and can put off real estate buyers. This can increase the supply of real estate properties in the market. With more real estate properties than buyers, the market will start to slow down. This will have financial repercussions for real estate developers and real estate consultants. Since most real estate developers take loans to build those real estate properties, they will struggle to pay back those loans due to poor cash flow and lower demand.
Impact on Construction industry
Slower real estate market can send a shockwave through the construction industry. When there is already an oversupply of real estate properties, construction companies won’t build newer properties. This will negatively impact those associated with the real estate construction industry. The lower demand for new construction could put real estate construction companies in hot waters. They might have to layoff their employees due to slower demand or even have to shut their doors altogether.
More Competition Amongst Real Estate Developers
When supply of real estate properties is higher than the demand, real estate developers will face stiff competition. With few buyers in the market and more real estate developers chasing these buyers, expect cut throat competition. Every real estate developer, agent and broker wants to attract those buyers and persuade them to buy a property from them instead of others.
Investor Confidence
As mentioned before, lower demand and higher supply leads to lower real estate prices. This can dent real estate investor confidence as they are investing to get a higher return on their investments. When they see property prices falling, they are more reluctant to put their money into the markets.
They might wait long for the tables to turn and demand to rise so that property prices start to appreciate. That is when they will put their money into the market. How does oversupply of real estate properties negatively impact the real estate industry in Dubai? Share it with us in the comments section below.
