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Discuss this article (68 Comments)Is this a second crash?
by This email address is being protected from spam bots, you need Javascript enabled to view it on Thursday, 06 August 2009
Everyone I meet is wondering the same thing: are we in the middle of a second property crash? Has anyone really got a clue?
Okay, let me declare a few things first: I am no expert. This is just my opinion, and I am sure many of you will email me (again) to say its total drivel. That’s fine; at least my mother loves me.
Anyway, here’s the issue: does anybody know exactly what is going on in the market right now? There are, I think, three ways to measure.
First, the view of so-called “experts”. Second, anecdotal evidence, and third, the view of established and respected estate agents.
Let’s kick off with an “expert view.” My favourite is this, from Marcello Sambartolo, head of marketing at propertyfinder.ae.
Last week he sent all media organisations a press release proclaiming that the big summer crash “did not materialise.” I am intrigued, Mr Sambartolo. How do you know? This is early August, we’re still in mid-summer! (I’m tended to say something here that I know I shouldn’t).
Bizarrely, this property guru also claims in the same press release that “prices have once again taken a dip.”
Anyway, I think we can all agree that he, erm, doesn’t have a clue.
Let’s look now at some anecdotal evidence. Last week I decided to go and look at a new two-bedroom flat on The Palm Jumeirah. I had no interest in renting it, just wanted to gauge the market. The estate agent arrived five minutes late.
“Sorry I am late; the market’s gone absolutely crazy. I’ve never seen anything like it, everyone is just buying up everything, rents are going through the roof again,” she told me.
She said the flat would cost AED160,000 to rent. “You’re the eighth person I’ve shown it to this evening. I do like you though; I’m tempted to blow out everyone else. If you have a cheque you can write me now, I can hold this apartment for you.”
I declined. The following morning, she called me. “Good news. The landlord really likes you as well. You can have it for AED120,000.”
I’m flattered that a landlord I’ve never met really likes me and wants to give me a 25 percent discount. Either that, or the estate agent also hasn’t got a clue. (Again I’m tempted to say something here that I know I shouldn’t).
I’ll go for the latter...which leaves us just with the views of respected agents.
According to Colliers International, the rate of decline in Dubai house prices slowed in the second quarter with values falling 9 percent.
In the first quarter of 2009 property prices in the emirate dived 42 percent, according to Colliers. So from this, we can evaluate that prices have fallen over 50 percent in the first two quarters of the year, and the all important third quarter – well the figures aren’t in yet.
But if something fell by 50 percent in one half, the chances are it won’t go up in the next half.
If you are 5-0 down at half time in the Premiership, you probably ain’t gonna take three points after ninety minutes are you?
With no reliable data, reports or even evidence on the ground, we are back to the guessing game. So I might as well pitch in.
I don’t for a moment believe house prices have stabilised – I seriously think there is another 15 percent fall to come in the rental market, and another 10 percent slide in selling prices.
Is that a second crash? I haven’t got a clue...
READERS' COMMENTS
Disclaimer: The views expressed here by our readers are not necessarily shared by ArabianBusiness.com or its employees.
denny's ideas
Posted by Telco guy, Dubai, UAE on Monday 31 August 2009 at 10:01 UAE time
I could not help but reading your mail sounds like some of my country politicians promising to turn things around with great -XX1-century looking projects.
1. Education - Currently the only reason to set up shop in DXB is to use it a as a cash cow for churning titles and executive programs and little else. how exactly do you plan to attract world class talent for either research or teaching when there is simply no infrastructure (grad students to act as slave workers while working their PhDs for example,...) Building a reputation in Education will take at least 10-15 years.
2. Health care - Dubai may be better than the rest of the region, but if I am a US/UK/German resident why should I stop here and no keep flying until India, Thailand or PI who already have a proven track record on medical tourism.
3. Creative services this may work, for MENA region, about competing with France creatives, I seriously doubt it. Afterall there is an even higher concentration of Lebanese in Lebanon and so far Lebanese agencies are not displacing French ones. It is more likely that individuals will move to Paris
4. Trade I think this is DUbai strongest point.
5. Software. this is a business that requires talent, assuming that somehow you could find it here. What would prevent Manama, Doha or any other city in the region of doing it? Dubai has no specific advantages compared to these cities (unless you consider freer access to booze). Given that in this region most of the talent will be indian, why should they relocate here? You see few top-class indians in the GCC you may wonder why India's top talent either goes to the US or stays home (I know I will get flamed for this)
I know many people are thinking along these lines, everybody wants to be the next "Silicon Valley" and all that. The point is that industrial/technological/scientific clusters like Silicon Valley can not be "created" by governments spending money. You can look at the many attempts by European and Asian Governments and local and regional agencies. Not a single one has worked. They come into life because there is a critical mass of talent around, that starts working together and attracts more talent.
Many people seem to believe that with a tax-free environment and paying some stars a lot of money you can jump-start any of the above. I doubt it.
While Dubai maintains the two-level (or three, or four-) approach when the white-faced one gets paid a lot of money but then the rest of the supporting team gets paid peanuts, it will be impossible to develop the level of talent to compete world-level.
This will require a change in the mindset that in my view it will be very hard or impossible at least in the short term.
Posted by Telco guy, Dubai, UAE on Monday 31 August 2009 at 10:01 UAE time
I could not help but reading your mail sounds like some of my country politicians promising to turn things around with great -XX1-century looking projects.
1. Education - Currently the only reason to set up shop in DXB is to use it a as a cash cow for churning titles and executive programs and little else. how exactly do you plan to attract world class talent for either research or teaching when there is simply no infrastructure (grad students to act as slave workers while working their PhDs for example,...) Building a reputation in Education will take at least 10-15 years.
2. Health care - Dubai may be better than the rest of the region, but if I am a US/UK/German resident why should I stop here and no keep flying until India, Thailand or PI who already have a proven track record on medical tourism.
3. Creative services this may work, for MENA region, about competing with France creatives, I seriously doubt it. Afterall there is an even higher concentration of Lebanese in Lebanon and so far Lebanese agencies are not displacing French ones. It is more likely that individuals will move to Paris
4. Trade I think this is DUbai strongest point.
5. Software. this is a business that requires talent, assuming that somehow you could find it here. What would prevent Manama, Doha or any other city in the region of doing it? Dubai has no specific advantages compared to these cities (unless you consider freer access to booze). Given that in this region most of the talent will be indian, why should they relocate here? You see few top-class indians in the GCC you may wonder why India's top talent either goes to the US or stays home (I know I will get flamed for this)
I know many people are thinking along these lines, everybody wants to be the next "Silicon Valley" and all that. The point is that industrial/technological/scientific clusters like Silicon Valley can not be "created" by governments spending money. You can look at the many attempts by European and Asian Governments and local and regional agencies. Not a single one has worked. They come into life because there is a critical mass of talent around, that starts working together and attracts more talent.
Many people seem to believe that with a tax-free environment and paying some stars a lot of money you can jump-start any of the above. I doubt it.
While Dubai maintains the two-level (or three, or four-) approach when the white-faced one gets paid a lot of money but then the rest of the supporting team gets paid peanuts, it will be impossible to develop the level of talent to compete world-level.
This will require a change in the mindset that in my view it will be very hard or impossible at least in the short term.
Not Yet
Posted by UAEHOME.COM, London, England on Sunday 30 August 2009 at 14:13 UAE time
I think it will be another couple of years until the property market picks up again, banks are still scared to lend, people are still scared of loosing their jobs and many people are still struggling to pay off what they already owe.
UAEHOME.COM
Posted by UAEHOME.COM, London, England on Sunday 30 August 2009 at 14:13 UAE time
I think it will be another couple of years until the property market picks up again, banks are still scared to lend, people are still scared of loosing their jobs and many people are still struggling to pay off what they already owe.
UAEHOME.COM
Reality Check...
Posted by Faithfully Expat, DXB, UAE on Thursday 27 August 2009 at 21:53 UAE time
People's mentality towards property has changed in DXB...ownership vs leasing??
In an unstable market, leasing wins hands down!! Alot of people who were considering buying are now turning to leasing due to uncertainty with whether their job is still there tomorrow or asking the question 'is it time to leave DXB?'. So Leasing busier than Sales definitely. Rent increases or decreases is dependent on the area - you have to consider the supply of housing in that area and the demand for that community. The Palm - well you just have to look at all those apartments which are about to handover if not already!! Going fast on the palm??? - I dont think so, there will be another apartment just around the corner.
Leasing is just a much quicker escape from DXB should things get worse. If you know your job secure or you have money hiding under your mattress or hey you're lucky enough to have your company pay you Housing Allowance then great mortgage and ownership an option for you - you just need to make sure you find that property that is price at a bargain!!..negotiate to less than OP - make sure you check that the original price was realistic to start with. Sorry to say that many bought at ridiculous OP's that now no one is willing to pay near that OP for the property.
And oh by the way ownership people, just remember, if you have to leave DXB obviously you need to sell your property and pay back the bank....
What if you cant sell your property because since you bought it, the market has been flooded with new supply? ...and alot of properties similar to yours stand empty because cant find anyone to buy it even when going cheap.
How many other villas and apartments will you be competing with when it comes time to sell?
Who will be in DXB at that time in terms of population living here to buy your property?
Why should they buy your one and not the one not lived in just down the road?
Dont want to call it a crash but further decreases will come - I say when supply of new housing comes on the market in 6-12 months. When the following communities start to get handed over and complete - like Jumeirah Park, Jumeirah Village, Sports City, Victory Heights, Jumeirah Golf Estates, Al Furjan, Motor City, The Villa project, City of Arabia - all these well on there to be completed if not handed over already, so they well over 75% complete stage - cant exactly put it on hold or cancel the project can they?
Buyers beware!!
Psssst buyers - If you dont manage to sell your property, then consider leasing - it can be your income generating asset in DXB - that's if you dont need the capital from it to relocate.
All the best...
Posted by Faithfully Expat, DXB, UAE on Thursday 27 August 2009 at 21:53 UAE time
People's mentality towards property has changed in DXB...ownership vs leasing??
In an unstable market, leasing wins hands down!! Alot of people who were considering buying are now turning to leasing due to uncertainty with whether their job is still there tomorrow or asking the question 'is it time to leave DXB?'. So Leasing busier than Sales definitely. Rent increases or decreases is dependent on the area - you have to consider the supply of housing in that area and the demand for that community. The Palm - well you just have to look at all those apartments which are about to handover if not already!! Going fast on the palm??? - I dont think so, there will be another apartment just around the corner.
Leasing is just a much quicker escape from DXB should things get worse. If you know your job secure or you have money hiding under your mattress or hey you're lucky enough to have your company pay you Housing Allowance then great mortgage and ownership an option for you - you just need to make sure you find that property that is price at a bargain!!..negotiate to less than OP - make sure you check that the original price was realistic to start with. Sorry to say that many bought at ridiculous OP's that now no one is willing to pay near that OP for the property.
And oh by the way ownership people, just remember, if you have to leave DXB obviously you need to sell your property and pay back the bank....
What if you cant sell your property because since you bought it, the market has been flooded with new supply? ...and alot of properties similar to yours stand empty because cant find anyone to buy it even when going cheap.
How many other villas and apartments will you be competing with when it comes time to sell?
Who will be in DXB at that time in terms of population living here to buy your property?
Why should they buy your one and not the one not lived in just down the road?
Dont want to call it a crash but further decreases will come - I say when supply of new housing comes on the market in 6-12 months. When the following communities start to get handed over and complete - like Jumeirah Park, Jumeirah Village, Sports City, Victory Heights, Jumeirah Golf Estates, Al Furjan, Motor City, The Villa project, City of Arabia - all these well on there to be completed if not handed over already, so they well over 75% complete stage - cant exactly put it on hold or cancel the project can they?
Buyers beware!!
Psssst buyers - If you dont manage to sell your property, then consider leasing - it can be your income generating asset in DXB - that's if you dont need the capital from it to relocate.
All the best...
increase in house rent
Posted by mike ali, oregon, usa on Sunday 16 August 2009 at 09:04 UAE time
every one saying that the rent goind down while our landlord still increasing our rent by 20% using RERA evaluation as an excuse . Also yesterday only I went checking in Deira, Al Muraqqabat street (not MARINA) where they asked 90,000 dhs for one bed room and 125,000 dhs for 2 bed rooms , take it or leave it. Really I wonder how the ents went down and where??
Posted by mike ali, oregon, usa on Sunday 16 August 2009 at 09:04 UAE time
every one saying that the rent goind down while our landlord still increasing our rent by 20% using RERA evaluation as an excuse . Also yesterday only I went checking in Deira, Al Muraqqabat street (not MARINA) where they asked 90,000 dhs for one bed room and 125,000 dhs for 2 bed rooms , take it or leave it. Really I wonder how the ents went down and where??
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