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Latest News

Sitting on the property fence

Sitting on the property fence

Will Dubai’s real estate sector suffer from the global credit crisis? Or is it insulated from the financial Armageddon? It’s hard to tell

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October 19, 2008 4:45 by



Dubai has pinned its future on a thriving real estate industry, one that has both confused analysts and delighted investors with record returns on investments.

With the global credit crisis, however, the future of Dubai’s property sector seems uncertain. Even before the financial meltdown, the projections for the sector’s performance in 2009 and 2010 weren’t as promising as they had been for 2006 and 2007. A Morgan Stanley report expected prices of properties to fall 10 percent by 2010. The report explains that the property sector will suffer due to an oversupply of units delivered into the market at the end of 2009 and the beginning of 2010.

Many investors agree, although some claim that the emirate’s steady increase in population (approximately seven percent per year) will ensure that property demands remain high. And even if prices do go down, analysts note that by the time prices fall, they would have already appreciated considerably, thus cushioning the ill effects of a price drop.

That was back in September. Today, investors are concerned about the feasibility of the Dubai’s developments. According to Reuters,  it’s a sentiment shared by the head of Dubai Islamic Bank (DIB), Khaled Al Kamda:

“The days of cheap money are gone, be prepared to pay more,” he said. “Real estate will suffer, big real estate projects will be revisited…put on the back burner. The viability of these real estate projects will need to be revisited.”

His sobering statements came soon after several CEOs in the property sector dismissed claims that the market is set to experience a correction. Ali Hussein Al Rahma, CEO of Eqarat.com, blamed media reports and market studies for instilling fear in current and potential investors, Arabianbusiness.com reports: “I was the first to alert that someone has entered our market to instill fear,” he claimed. “These are mostly, unfortunately US companies. Why are they doing this? To encourage investment in the United States. We have seen this with our own eyes.”

Al Kamda goes on to explain that Dubai’s economic foundations are strong, and that the current downturn in the market is only temporary.

So what does all this mean for the average investor? For end-users in need of home financing, getting mortgages in the UAE is harder today than it was a month ago: banks such as Lloyds TSB are stepping up their screening process, making it difficult to get mortgages.

For investors, the days of reselling properties to make fast returns are over. Aside from those who may have been interested in Dubai, but have lost considerable amounts of money in the credit crisis, investors are unwilling to put their precious cash in a property market that need AED 50 billion to fund the projects being built in 2009. Naturally, they’re being cautious.

In fact, everyone is being cautious. Not only because of the negative sentiments engendered by the world’s ailing economies, but also because getting answers about the state of Dubai’s property sector is like deciphering a private code: if you have friends on the inside you’re more likely to understand what to do with your money than those who’ve been relying on media reports alone. The lack of transparency about the state of Dubai’s property market isn’t helping anyone…certainly not investors who’re keen to assess the market’s true strengths and weaknesses.

 



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2 Comments

  1. Staneley on October 20, 2008 8:25 am

    This report gives the real picture of Dubai’s so called Property boom. The days of quick bucks are over. I think they are in for a huge crash but in phases. The real beneficiaries should have been the middle class in Dubai but they are forced to leave Dubai because of the rising inflation. Dubai is too much dependant on foreign money and its fundamentals are not strong at all. It is Abu Dhabi which is going to gain from Dubai’s loss. 200% sure.

     
  2. Bill on October 21, 2008 12:55 am

    The Dubai property market is vulnerable because it is still so dependent on rentals, and rental prices are reaching ridiculous levels that are actively starting to drive even the better-paid expats out, because companies are starting to put the brakes on the ever-increasing pay rises required to keep up with inflation. Throw in the inexplicable practice of demanding rent a year in advance instead of with normal monthly payments, and Dubai has almost squeezed the life out of the golden goose.

     

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