Put on your seatbelts, here we goJune 23, 2015 9:00
Dubai buyers shouldn’t get too carried away this time
JLL's Craig Plumb says that banks don't have a current appetite for major lending to real estate projects.
November 26, 2012 5:40 by Muhammad Aldalou
With the aftertaste of Dubai’s latest real estate announcement still fresh in our mouths; some have labelled plans for the ‘Mohammed Bin Rashid City’ as a positive step towards evolving the emirate while others have reacted to it with heavy dismay and concern. The fact of the matter is that, according to Richard Paul, Dubai needs to evolve if it wants to maintain its number one regional status.
“Dubai is very much looking at itself as the ‘Orlando of the Middle East’, if you know what I mean,” says Paul, Director of Residential Valuation at Cluttons.
On the other hand, he worries that the obsessive-buyer culture that very much existed in the pre-recession market may be reignited by the anticipation of more ambitious developments. “Making sweeping comments about the real estate market is unrealistic; pretending that everything is ‘hunky dory’ when we are still far from that. It’s important that we learn from the past and from our mistakes.”
“I think it is the responsibility of banks and the authorities to make sure that buyers and investors don’t get too carried away this time, but there are still certain projects in Dubai that are attracting the manic of ‘I have to buy it right now’ attitude. On a wider scale, there is a lot more caution than there was before and I am sure that Dubai has not taken the risks of this development lightly.”
As he would put it, there are certainly various ways to look at Dubai’s recent development announcements. For one, it promotes a positive investor sentiment and paints a futuristic picture of ambition and sector boosts and as Sheikh Mohammed Al Maktoum, ruler of Dubai said: “The current facilities available in Dubai need to be scaled up in line with the future ambitions for the city.”
“For the past 12 months we’ve seen positive improvements and we’ve heard positive remarks but only in select areas, not all,” continues Paul. “We have to start looking at Dubai as a multi-faceted sector because certain developments are now doing really well while others are not. They’re all working completely separately.”
As Paul stresses – from the definition of a consultant – dealings between two parties (buyer and seller) should be handled knowledgeably, prudently and without obsession but that it is the ‘without obsession’ part that he worries about. “Ultimately, like most economic issues; it is a human problem of being easily swayed and making purchase decisions purely on sentiment. Although the majority of people are more cautious now – there are still many buyers interested in short term gain, or owning a paper for a building that isn’t even built yet.”
Lastly, it brings us to the mystery of the funding. While the completion date of this development may still stretch miles down the road, the unannounced plans of financing this project remain obscure.
“The banks do not currently have an appetite for major lending to real estate projects and investors are also more cautious now concerning both debt and their exposure to ‘off plan’ real estate projects than they were in 2007/8,” says Craig Plumb from Jones Lang LaSalle.