= FOCUS: Dubai Property Agents Fear Crash As Home Sales Slump |
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Sunday, Oct 26, 2008
By Stefania Bianchi and Mirna Sleiman
Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--A six-year real estate boom in Dubai that spurred a $475 billion building frenzy has ended, according to agents who say sales are collapsing amid fears that the global economic downturn will hit the sheikdom.
"Last month was a real disaster and worse is coming I guess," Mehdi Zoghbi, an agent at Middle East Real Estate Consultants, told Zawya Dow Jones Sunday.
Zoghbi says that desperate sellers are now offering off-plan properties on the secondary market for a zero premium, effectively accepting a loss on their investment in order to offload quickly.
Dubai, the first Gulf sheikdom to allow foreigners rights to buy homes, may also be the first to see a crash in property prices as uncertainty over the region's prospects and the global credit crunch have undermined investors' confidence.
"Our commissions have fallen by up to 70% recently," said Khaled Daji, an agent at Al Jabal Real Estate. "The most hit are the projects under development and those luxurious high end. We plan to survive for another six months to see how this crisis unfolds."
Daji says that Dubai's real estate watchdog needs to do more to stop the practice of "flipping" property and the payment of "key money" to reserve real estate.
But the city's biggest developers like Emaar PropertiesEmaar Properties
PJSC (EMAAR.AI) and NakheelNakheel are adamant that sales remain robust. Mohammed Alabbar, EmaarEmaar's chairman and one of the architects of Dubai's real estate boom, said in the company's third-quarter statement that "we are very confident of our company's fundamentals and future growth."
That hasn't stopped investors dropping the company's shares. EmaarEmaar's stock has fallen 62% since the beginning of the year, that's more than the 48% fall in the Dubai Financial Market's main index over the same period, according to Zawya.com data.
Earlier this month, Colliers International said the growth of property prices in Dubai slowed to 16% in the second quarter of 2008 from 42% in the first quarter. Morgan Stanley warned in August that property hotspot Dubai could see a 10% fall in prices by 2010.
A collapse in real estate prices will add to pressure on Dubai's economy, which doesn't benefit from the vast oil income enjoyed by neighboring Abu Dhabi. Property and construction are estimated to account for about 30% of the emirate's economy.
And the buoyant economic conditions across the region that have underpinned Dubai's real estate boom, which according to Middle East Economic Digest will consume $475 billion in capital spending, are now under assault.
Oil, which underpins the region's economy, looks likely to fall further as demand across the globe weakens. Crude traded in New York closed down at $64.15 a barrel Friday.
Not Panicking
Tighter lending is also making life hard for many real estate agents, with buyers unable to secure loans for property without larger deposits.
HSBC HoldingsHSBC Holdings PLC (HBC), the largest international bank offering home loans for Dubai property, tightened its requirements last month asking borrowers to front up to 50% of the purchasing price for some homes.
The bank will now only lend up to 70% of the total value of the property in the best cases, down from 85% last month.
The tougher terms are "to ensure that customers receive loans that they can afford to repay at a time of considerable uncertainty around the world," the bank said in a statement to Zawya Dow Jones.
"The financial crisis is putting people off buying," said Lisa Penderis Dubai-based real-estate agent. "End users are particularly impacted because banks are only lending up to 75% so people need to find a lot of cash for a deposit."
Tony Stafford, a British commercial manager working in Dubai has like many of the 100,000 U.K. nationals living in the United Arab Emirates bought property in the sheikdom as an investment. He owns two apartments worth about 3 million U.A.E. dirhams ($817,000).
"It's not a great time to be selling as banks aren't lending," Stafford told Zawya Dow Jones in a phone interview. "But I'm not going to reduce the price of the apartments because I'm confident things will pick up again before Christmas. I'm not panicking. I'm just waiting for the right buyer."
Stafford, who remains bullish, says he will buy another property in Dubai and is now in a stronger position to negotiate on the price. His optimism is shared by Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum who announced earlier this month plans for the AED350 billion redevelopment of the city's Satwa district.
But whether buyers still exist in the current depressed economic mood is no longer guaranteed.
-By Stefania Bianchi, Dow Jones Newswires, +9714 364 4967 Stefania Bianchi@dowjones.com
Copyright (c) 2007 Dow Jones & Company, Inc.
(END) Dow Jones Newswires
26-10-08 1109GMT
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I lived in Dubai for the best part of the 80s and early 90s and have visited several times since. The place never ever appealed to me as somewhere to invest my hard earned shillings in. It was the worlds biggest hype and sadly too many have fallen for it.
The crash is actually far worse than many would care to admit and much worse is to come. I know of half a dozen people personally who have already lost almost 50% on their investments and many more are in a similar situation with no hope in hell of ever being able to recoup even the original investment.
The rental market may be kept alive by the hordes of chavs now visiting the place (the whole idea of turning it into the Riviera of the Middle East was a bad joke to start off with) but even there the trend is seriously downwards. My advice: cut your losses and get out. [Report Abuse | Email to a Friend | Reply to this Comment]
I may have agreed that rents may not fall about 6 months ago... However, Dubai's real estate market has over-produced and is over valued, over hyped and is predominently based on massive speculation! The market is falling... I can tell you as I have been trying to unload property for months! No buyers at 20% below market value!
In addition to Dubai's individually created problems, you cannot ignore the global economic crisis and Dubai's exposure. Both end-users and developers alike will be impacted by the lack of credit. On a grander scale... many organizaitons will start cutting back on marketing, staff, offices etc... in Dubai. This is only a few months away my friends and you cannot ignore it. You see, the thing about Dubai is, once one loses there job, they go back, and have to go back to there "real home". Appartments and villas will have much more occupancy, and yes, rents will drop, but unfortunately! Dubai is not home and will never be home and you can't ignore that!! No job, no welcome!
All of the above considered, my recommendation is that if you're looking to make a profit in the short term, then unload your property at any price and cut your losses if you have to! If you're in it for the long term, then you may have to wait up to a decade to see 2008 pricing. This market is ready for a grand collapse and that includes everything... especially rents!
For so many reasons, the writing is on the wall people! The ship is going down and faster than you can believe, just as it did in 2005 with the Dubai stock market. Its a false dream, Wake up and get real and don't believe any hype! [Report Abuse | Email to a Friend | Reply to this Comment]
Prices may come down, but rents are amazing. Unless tourism takes a dive short term rent will be great. Its all about the yeild now.....
Now more then ever there are great opportunities to achive 10% - 18%+ yeild. The right property in the right locations is still a good if not great investment. [Report Abuse | Email to a Friend | Reply to this Comment]
I don't understand how someone can say that the " real estate in general is not so bad"! I am a stock broker in the dubai financial market and remember the good days when 99% of the clients were day traders, everyone was making money and we all thought it would last for at least 5 years, well the party was over in less than one year, everyone and I mean everyone I literally know on a personal or professional basis lost money. The market was all speculators and i was one of them, this stock will reach this price, that stock will reach that price and so it went, right now no one knows were the bottom is, I am watching the screen Emaar is trading at 5.08 dirhams, I remember back in the day when it was trading in the 40's and we were all talking about the stock being an excellent buy, buy Emaar at 42 and sell it in a few weeks at 50 or 60 if your patient.
I seen real-estate brokers talking our talk, they say buy this property at 1300 a square foot and sell it for 1500 per square foot in a few weeks. The Real estate brokers tell me " the market won't go down for at least 5 years" ring a bell to you?
When I paid 600,000 for a 3 bedroom in the springs my friends all thought i was crazy. Now people think a 1.5 million Dirham one bedroom is excellent value and a great investment, in my opinion the party is over but let me say this the hang over is going to last a very long time, you haven't seen nothing yet. [Report Abuse | Email to a Friend | Reply to this Comment]
The theory of light and sound. You see the lightning first and then the thunder. Wait for the thunder. Only close your eyes and ears by then.
Realty in Dubai is not based on strong fundamentals of economics. Look at the demographic pattern. Out of a population of about 4.5 Million 70% are Asians who have come down to work here and save money and invest in their own country.
The rents are a minimum of AED 5000- per monthfor a studio flat . Department of Labour has all the statistics. Let them check up and do an analysis. How many of the expats can afford to rent even a studio flat. I bet. Not even 10%.
Crash is imminent. When you built castles in the air (or the desert) it is bound to happen. [Report Abuse | Email to a Friend | Reply to this Comment]
great article down jones!
it's nice to see that there are some more objective and honest depictions of the dubai real estate market and dubai as a whole! i am absolutely sick of all the propaganda/pr in uae newspapers regarding the strength of the real estate market. "expert" pr articles by written by real estate angencies make send shivers up my spine as do the recent declarations by some developers that the dubai real estate market will never fall! the real estate market has what's coming to it as it was build on greed and no regulations.... many will soon realize that they had bought into a nightmare rather than a dream. [Report Abuse | Email to a Friend | Reply to this Comment]
A part from the media crisis, life is continuing pretty normal. Plenty of people in the supermarkets and the coffee shops. Traffic is a norm for my daily trips. The new collections are already displayed on shop windows and the Christmas business seasons already shows signs of beginning in IKEA. Kids party is on the agenda today and tomorrow a visit to the delphinium.
During the last two months I lost half of my money on DFM, but hopefully in 6 months or a year it will recover. This is the circle of life - up and down.
So far the price per sq.ft in JLT fell only by AED 200 per sq.ft and I am wondering: shall we buy now or hope for further discounts..... [Report Abuse | Email to a Friend | Reply to this Comment]
Is it Bush or Cheney who bought property in Dubai? [Report Abuse | Email to a Friend | Reply to this Comment]
It is totally normal for there to be a correction. Wherever there is a bubble, there has to be a bursting of the bubble. It is coming now in a serious international set up but would have happened anyway.
As prices were ridiculously high, it is normal they get back to a more decent level. I mean come on, a villa at Emirates Hills is still in the middle of the desert with risk of electricity and water shortage (medium or long term) and cannot be priced 68 M AED or 20.6 M CHF while a rare and beautiful property in the heart of Geneva would only cost you 10 M CHF. [Report Abuse | Email to a Friend | Reply to this Comment]
Very nicely put. Well explained. This is exactly the case. They deserve everything's that's coming to them! [Report Abuse | Email to a Friend | Reply to this Comment]
Up until now, the Emaar stock was worth crap and the Emaar property was gold.
My prediction is that going forward, Emaar property will be worth crap and the Emaar stock will become gold :) [Report Abuse | Email to a Friend | Reply to this Comment]
The fundamentals have left the building!!
Simple maths lesson for the property bulls. Land=very cheap or free, Labor =Cheaper than any developed City/Country, Materials=Tax free. Finished product = As high as some of the developed world best and most prosperous cities. Reason - fueled by uneducated and inexperienced property "investors" spurred on by a band of unregulated, unlicensed unscrupulous agents to pursue the dream of easy and instant riches. The Result -everyone in Dubai is now IN the property game and therefore an expert! The real experts have cashed out and are waiting for the mug punters to loose their equity, personal loans, credit card loans, default of payments, bankrupt fly-by-night "developers" and then they will pick up a bargain! late 2009 when all the screaming stops..... [Report Abuse | Email to a Friend | Reply to this Comment]
off-plan sales will be affected as some speculaters were borrowing to make the first one or two payments. but the real estate in general is not so bad, ready properties are retaining value easily. its simple economics in the end, demand vs supply and the cost of rent. the demand is clearly there, as we all know. As for the cost of rent, still increasing and shockingly, people keep coming and paying!! this is a temporary phase we're going through, this is the best country in the gulf to live in and owning real estate is a great move that we should all consider. we may never have bargaining power with agents/sellers again. [Report Abuse | Email to a Friend | Reply to this Comment]
It's very logical, common sense and ABC of Economics that real estate prices fall in UAE. We reached a point whereby flats and villas had been sold faster than Potatoes at Careffour!!!! I am a main believer in UAE bcz of its second to none leadership. Thus, the market will not crash bcz of the UAE sharp leadership that secures stability + OIL + financial reserves but a price correction of 20-35% in the coming months is inevitable. Prices in Dubai became higher than Santa Monica, CA, Cannes, French Riviera and many other top world class VVIP locations. We saw very young people selling and buying properties. Well, real estate is an industry by its own and the price correction will get the market healthier. Whoever still dreams of millions from selling and buying everyday through loans will have to think again and again. Let him find another profession that suits him more. The Dubai real estate market deserves optimum professionalism and stability. [Report Abuse | Email to a Friend | Reply to this Comment]
GCC is part of world. What is happening is effecting us her at GCC. What worries us is banks strength not clear for us and how bad the situation. [Report Abuse | Email to a Friend | Reply to this Comment]
MARKETS HV CRASHED JUST WAIT FOR THE SOUND. [Report Abuse | Email to a Friend | Reply to this Comment]
Stafford Just wait and you will be the big loser !! [Report Abuse | Email to a Friend | Reply to this Comment]
Dubai is not a free market to react to demand. Effective supply controls will limit the downside risks to a large extent [Report Abuse | Email to a Friend | Reply to this Comment]