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Property: we’re going in circles
Property prices on the Palm have dropped 40 percent; Amlak isn’t giving anymore mortgages; and buyers have vanished. For now, Dubai's property market doesn’t look good.
Nov 20th, 2008 
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The Atlantis launch party tonight couldn’t have come at a worse time. Not only is the world reeling from one of history’s worst economic crashes, but the residents on the Palm – where the hotel is built – have just received disheartening news: the value of their properties have dropped by 40 percent. We suspect the fireworks display tonight (rumored to be largest in the world) won’t make the pain go away.
The fall in prices is not official, but according to the property consultants who spoke to Reuters, prices of villas on the Palm Jumeirah have fallen over 40 percent; the value of some villas fell from AED15 million to AED10 million.
The market has turned from being a seller’s haven to a buyer’s market, but not just any buyer. With banks and mortgage lenders holding back on home financing, the only buyers who can take advantage of the falling prices are those with enough cash to cover the price. “It is very hard to get loans now. Customers are suffering,” said Rehab Gouda, senior sales agent at Al Jabal Real Estate to Reuters. “Either they have pre-approval from before the crisis, or they are cash buyers.”
We suspect there aren’t many buyers with millions in their accounts (or are there?).
Which brings us to why it’s a cyclical problem: those who bought properties to ‘flip’ them aren’t finding buyers. If they don’t have the cash to buy their properties, they turn to banks, who, in turn, tell them to turn elsewhere. Consequently, many investors are unable to pay the installments on their properties, and they’re desperate to look for buyers. But they’re unlikely to find buyers because banks aren’t giving mortgages; otherwise, according to media reports, there would be buyers to purchase the Dubai’s properties. It really boils down to the lack of home financing.
This is why the news that Amlak will not be issuing any more loans won’t help the market. “We are reviewing our existing credit policy to ensure optimum servicing of existing and prospective accounts,” explained Arif Al Harmi, Amlak’s CEO, in an emailed response to Bloomberg News.
But whatever the reason, Amlak’s decision to stop dispensing mortgages to home owners in the Emirates will no doubt affect the market negatively. With another mortgage lender out for the count, it’s likely Palm Jumeirah residents may be in for more bad news. -DB
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Things aren’t looking good as long as banks aren’t lending. BUT — it’s worth looking into how much these property prices have shot up in the last year. I don’t know, but it’s a lot in some cases — often more than 40%. So while it’s easy to see the words “40% fall” and say “it’s a buyers market,” maybe a 40% drop is only a mild correction to price levels of early 2008. A better benchmark would be for these reports to say “the market has returned to levels of [such and such date].”