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Dubai Property Prices - the truth
by This email address is being protected from spam bots, you need Javascript enabled to view it on Sunday, 10 August 2008Posted on Friday, 31 October 2008
Dubai Property
Posted by Bill at 15:50 UAE time
Puppets in the show!!!
I will say what isn't being said here... Global monetary crisis does effect everything, but prices in the UAE are falling, not because of this trend, but because Dubai wants them to!!! Since when have people been saying Dubai could not sustain their growth year on year, as far as population infrastructure and real estate??? I estimate roughly 10 years!!! Without a word, every single time Dubai shows up at the table to play and proves the many skeptics wrong. That being said, after seeing what happened in the Dubai stock market a while back, do you believe the people who were in charge or major investors lost money during the correction? Actually its just the opposite, they created the correction in order to cash in on the rip!!! Dubai is letting their prices stagnate and not campaigning against it so there wont be a crash later! Is it a coincidence so many large projects got delayed? Do you believe that the few large developers partially or predominately owned by Dubai will hurry up to complete projects to have prices fall sharply and homes stay empty? Do you believe that the new "visa regulations" don't continue to change in order to balance the local infrastructure and housing market? Dubai knows they have to curb inflation, and in response to their need, they allow prices to fall and the market to cool down a bit so it doesn't boil over, but just like the stock market, the major investors will use this opportunity to cash in on the losses of the "little guy"!!! I own some property in the UAE, but I am not a short term investor or someone who buys and flips property, thus I know my investment is sound and will continue to make me money for a long tome to come. I believe this whole circus has been orchestrated to cut out short term investors, and judging by the small price decline its working. Anyway, just thought I would share a different point of view instead of justifying an existing one. In closing if you can buy do it, and if you own sit on it, believe in the leadership which controls the market and you wont be sorry!!!
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Posted on Tuesday, 28 October 2008
Dubai property prices
Posted by Manoj at 09:54 UAE time
The main discussion in the article as well as comments posted are the effect of less investors and less money supply on the Dubai property market. However another factor has been overlooked. A large number of properties have been bought by investors from India, Pakistan, Iran just for obtaining the non-resident status in their respective countries to help in their business in their own countries. For example there are some towers by Emaar in Dubai Marina where most of the apartments are owned by Iranians; with nobody staying there. The Indian and Pakistani businessmen are looking to invest their black money and Dubai is the best place for it. For the Iranians, all their businesses are conducted through Dubai due to the international sanctions on Iran. So property prices will come down from the current level due to ongoing economic crisis; but there will never be a crash of prices.
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Posted on Monday, 27 October 2008
"The truth"
Posted by Paul at 15:25 UAE time
This article is not "the truth", it is simply one person's opinion. And what is the suggestion? That any contrary opinion is not truthful?
"My argument was simple: a lack of decent places to live and work in a booming Middle East give Dubai scarcity value - and that means there was more room for property prices to rise."
Look at the situation on the ground:
1) Oil price crashing
2) UAE stock markets crashing on global recession fears
3) Credit tightening, mortgage deals being pulled - now 65% LTV max
4) Quickly rising AED making Dubai more expensive
5) Recessions in UK and Europe - Dubai's main sources of tourists and property investors
There is no shortage of property in Dubai. There has just been a surplus of speculators. You will be shocked, like the UK was, at how quickly that situation can change. There was a 'shortage' in the UK we were all told (some still claim there is!). And prices then fell off a cliff.
Property bubbles have little to do with the supply of property. They are almost entirely due to the supply of money.
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Crash is a big word for this economy.
Posted by Ferhan at 13:54 UAE time
I dont think the normal economic theories apply here simply because of the lack of transparency in the market. I have read articles over articles about companies saying that the market is balancing out and we are going to see a loss if prfit but not investement. And on the other hand, I have heard and read about agents that are on a selling spree to cash out of the crash. Apart from the Emaar, the biggest property developer is sliding in the stock market and alot of CEOs have been caught in corruption charges, yet they claim that the market can only go up.
90% of the people that are living in UAE are expacts. Off that the nationalities that buy property are mostly "Locals". How much can they buy? People that have bought property here are flippers, and the regulations are not that strong from people to stop doing that. The market is still pretty immature. 70% of the property that is being built or have been dilivered are luxurious, and thus a middle income, which is more then 80% does not have the capability to afford such property, either to rent or to buy. Financing for long term is not feasible for the expact since their duration of stay and their status is not permenant, thus commiting to long financial terms seems irrational.
Now that there is a huge liquidity crises aroung, primarily caused by mortgages, banks over here are very tight on giving loans.
I do not want to be a speculator, but my reasoning just tells me that we are in stage.......6....... and the crash is imminent. But just like we dont know what happened to those corrupted CEOs we wont know what, when and how the crash happened?
BTW the real estate crash of Singapore in the early 1990s was kinda similar. Except it did not have the Credit Crunch at that time, it was purely supply and demand!
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Posted on Thursday, 16 October 2008
Dubai Property Prices - the truth
Posted by Hani at 13:03 UAE time
I personally think we are in a bubble, and about to go down for several reasons, yet the downside might not be as steep, given the growth in migration of people to Dubai. Yet migration is based on jobs and a standard of living, as companies reconsider their expansion plans due to funding restrictions, a slow down will occur and hence the job market will decrease, similarly, salaries will flat out as companies hesitate to increase in these difficulty times. Resulting in a smaller number of people able to locate here. hence demand on properties to decline, at the same time there is supply in the hands of a few who can manipulate, and this to be wieghed out
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Posted on Wednesday, 15 October 2008
Right article, right comments, at the right time
Posted by Jith at 18:08 UAE time
My 2 fils:
I do not want to speculate on the stage we are in now.
Even if we are in stage 8 right now, will we ever know??? Will we ever have the actual facts to develop a hindsight and look back? I dont think so. All we will ever hear will be "market correction" or "rationalization" or "balancing". I do not expect to hear an admission of a crash in the Real Estate sector here ever.
Another aspect- I dont think we have even 5% of buyers to be counted as endusers. As long as aproperty is not bought to actually use it, then the only reason should be to make money out of it - by way of rent or by selling it higher.
Price elasticity of rents stop will stop at some point and financial rationale to buy will do the same as well. Than will leave leave prices with only one direction to go - any guesses?
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Posted on Tuesday, 7 October 2008
Dubai Property Prices
Posted by Trystan Richards at 15:09 UAE time
Stage 6 - because foreign capital investment is going to tighten due to the shortage of global capital and because Dubai/UAE wages will not increase in line with current property price inflation. These two groups of investors will therefore either be unwilling or unable to pay any higher price for property.
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Posted on Saturday, 23 August 2008
price correction
Posted by desert dreams at 11:54 UAE time
My guess is stage 6, crash imminent.
However, "imminent" could mean "in a year". Accuracy beyond that is beyond anyone's ability to predict based on past boom-bust cycles.
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Posted on Monday, 11 August 2008
Price graph
Posted by paresh at 22:38 UAE time
A very interesting article and most pertinent in all aspects.
We could be anywhere between 4-6, it is purely subjective and i believe the authorities realise the risk of a sharp crash and thus they are to implement an instalment treshhold to curtail flipping
and stabilise the market.
This may help for the moment but we still do not know how many of the buyers so far are actually genuine end users and that will actually determine the prices through supply and demand economics.
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This is good!!
Posted by SR at 13:48 UAE time
Very good insights by Trojan and some others as well. I would like to add one more thing.
There are simple investment fundamentals at work here! Risk vs Return! Lower the risk lower the return, higher the risk higher the return!!
So if anybody still want to deal in Dubai Real Estate, there is nothing wrong withi it. Only that he / she is taking a very high risk for an expected very high return! Plain and simple!
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More on the Vices of Market Timing
Posted by Trojan at 13:30 UAE time
This is a lively and stimulating debate, a lot of people mentioned excellent points. I would like to add just a couple of comments to my earlier blog:
1) Dubai is not NYC, London or Hong Kong. The comparison is simply not valid; the structure of the economy and sources of wealth in Dubai are totally different from these places. Dubai does not have an industrial region to back it up. Tourism and trade never generate the kind of income and high paying jobs to support the lavish life style and fancy condos that Dubai is promoting.
2) If we are indeed at stage 5 or 6 does not necessarily mean the crash will come tomorrow; it could be in 6 months, or it could be in a year. You never know, and you never try to time the market because you simply won't be able to get out fast enough. The dot-com bubble lasted until the later half of 2000, but many people (including Warren Buffet), were saying this is all ridiculous as early as 1997. Were they wrong? I don't think so. For one thing, when the correction came, everybody who was in the game got burnt, everybody. Even though stocks are very liquid, people just could not get fast enough. Imagine what it would be like with real estate. Another interesting analogy that I read in "Fooled By Randomness" by Nicholas Taleb (a book I highly recommend) is that of someone playing Russian Roulette for $1million. Say a bored millionaire offers your friend a million bucks if he survives a game of Russian Roulette (this is the game where you place one bullet in a six-barrel gun, spin the barrel, point the gun at your head, and pull the trigger - if you are lucky the bullet won't be in the slot at the trigger). Suppose your foolish friend decides to play the game despite your best advise not to take the chance, and he wins the million. Would you have been wrong to advice him not to play?
I think "madness of the crowds" is a more appropriate theme than "wisdom of the crowds". Emerging markets are notorious for their volatility - Dubai's stock market had the dubious distinction of being the worst performing market in 2006, with a correction of 60% in one year! If Singapore's real estate dropped 80% in the 90's, I would not be surprised if Dubai drops even more. Be careful, you are playing a very risky game!
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End of 5, perhaps ?
Posted by Obelix at 10:13 UAE time
We are fast approaching the end of stage 5 and that is pretty evident from what one sees around. Someone I know could not find a tenant for his apartment and finally moved in himself, even though the rent he was paying was lower and another friend is still waiting for a tenant for his villa on the Palm while continuing to pay the mortgage. Pass by the Marina / JBR at night and you will get an idea of the occupancy rates.
There was a time when people stood in the sun to grab a unit. Compared to that, the special 8/8/8 sale event of Emaar was rather disappointing. A recent report suggesting a correction in price two years from now sent shivers down the spine of everyone which prompted an editorial comment on how all was well in the market ; probably meant to reassure the public at large.
Over the next 4-5 years Dubai will not be tax-free haven. It still isn’t but most of us choose to ignore it. There may not be personal income tax, but there will be a huge increase in indirect taxation, sorry fees actually. Housing ‘fee’, maintenance ‘fee’, toll ‘fee’, airport ‘fee’, parking ‘fee’ and other such associated fees.
Apart from the economics, Dubai is an ecological disaster waiting to happen. Let’s face it, this is a desert and wasn’t meant to be like the Serengeti in spring. There will be an acute shortage of natural water – the water table is headed south. Cost of desalination will sky-rocket and saline content in the water will increase. I am sure there will be health related issues as well which in turn will lead to soaring cost of health care. Nature has a way of getting even when pushed to the limits.
There is no economic model so far that suggest that movement will only be in one direction and that is up. Countless economies will vouch for the fact the it is called a cycle for the simple reason that things go up and then down. I do not see any fundamentals here that suggest otherwise.
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Property Prices Graph
Posted by Maureen at 09:16 UAE time
Well written article - thoroughly enjoyed it!
My own thoughts are that that we are probably at stage 4, but sometimes I even have disbelief of my own beliefs, (i.e. don't buy in an upmarket). This because of the sheer numbers of people flocking to Dubai (The Gold Rush Syndrome ?).
But on the back of that I see huge numbers leaving and even more colleagues disenchanted because they cannot even afford the standard of accommodation they took for granted back home and now they wonder what it's all about.
They came here to have a change in lifestyle, make some money and make a difference, but that fairytale is changing.
The only people to truly benefit truly either the people who bought 3 years ago (lucky them for having had both the money and the foresight), and/or the people who are worried about the future of their own unsettled countries and are setting themselves up "just in case" . They are the lucky ones (or maybe not).
The main question I ask myself constantly is, when did the world become so concerned with property, wealth, and greed. Suddenly (and I do mean suddenly), we seem to be on a world stage where the world has gone quite mad about property.
When did it change from being a roof over our heads with maybe another small investment on the side(i.e. holiday cottage), to this monster making enormous capital gains for speculators.
The question has to be asked, is it driven like oil by speculation. I think the answer quite simply yes. Will it last? I don't think so. When will it end? Certainly not until the appetites are satisfied.
Is it wrong to speculate on property, probably not. Our forefathers never had the chance to "get rich quick without any effort", so why not get it if you can I hear everyone say.
The real problem arises however with the "Flip" mentality here in the middle east, and that is something which may catch a lot of people out because they will get in at stage 5 and fall victim to the failings in the system.
Check out the wealthy VIP's invited to these "salubrious property launches", they put down deposits on say 10 units, hand over their cheque, go down to the hall where the masses wait clutching passports and cheque books (there will never be another building built in Dubai you would think !). He onsells on first come first serve to these poor suckers, who eagerly pay him a 10% premium just to get the right to jump the queue and buy this rare commodity. He then pops back to the seller, gives them ten cheques and takes back his own!
It's a joke. I have seen it happen, and its wrong, but can we ever stop it, and who cares, certainly not the flippers.
But that's Dubai, and it is that greed that just might kill the goose in the end, but when will that be, and where are we on the hraph. Well maybe number 4 or 5, but then again maybe it's number 2. It is going to be a very interesting scenario as it plays out.
One thing for sure however, the rich get richer and the poor struggle to survive and that will never change, only the degrees of wealth changes at the upper end.
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Deja Vu
Posted by Luis at 08:59 UAE time
First, for this exercise you may be better if you had quoted "the wisdom of crowds". I personally find it quite shallow, but probably it would have been a better reference.
Trojan already took care of the market timing aspects and put some of the most disturbing facts. I would just like to add the following (facts and opinions).
Fact
I expected the dot com to crash much earlier than I did. If I had put my money where my mouth was I would have lost my shirt and margin calls would have killed me. Being right is not enough to make money, I think many people knew that there was an overvaluation but still it paid not to bet on it.
In 2004 I could not believe either that property prices in my country (Spain) or my workplace (London) could go any higher. Higher they went, and down... and I heard many of the same reasonings (like the need to provide housing for all the immigrants). Again the prices could go up for much longer than I could expect.
Fact
If you are working here, especially if you are an expat, it is not a good idea to invest here. This is an area with high specific country risk. If your source of money is here and your investments are here when economy goes south you will more likely get a double whammy, losing your job and your investments.
Diversification is king. (and yes, this is a fact, not an opinion, check any basic Finance book). For the same reason the fact tact that some institutional investors are putting their money in other areas is not necessarily bad. They may be looking for diversification themselves.
On the other hand, this supports the idea of people in Europe looking for a non correlated investment (if high oil prices screw up the economy and your job at least your investments are linked to an economy that profits from high oil prices).
Fact
Bubbles are not prickled so much by external events as by people losing heart. These type of polls may be a good barometer. But of course ex post people will build a causal relationship with some event (dot com it was 9/11 even though my company in the telco space had been laying off people earlier). For this one maybe it would be Russian-Georgian conflict... who knows. But all it takes is a change in "sentiment"... this may be quite sudden.
Fact
It is true that there is too much money in the region chasing too few opportunities. But now the opportunities in Europe look suddenly cheaper and the oil price may go down for a number of reasons. Besides trusting that your investments will work because of an excess in liquidity is, well, adventurous to say the least. Most people who invest here do not understand how this works, same was true during the dot com bubble, by the way.
Opinion
Even if prices go up this is not a good thing, it simply means that when (not if) they crash they will do faster and deeper.
Opinion
This region has a number of structural weaknesses that have been overlooked during the good times (legal system, regulatory capabilities). We see the failures in much more mature and (in theory at least) better regulated economies like the US. The mood is "We are different here". Well, my bet is that "we are NOT so different here" when the bad times arrive I do not think there will be too much preparation.
And while the governments in the region will probably take care of the locals (for their own survival), expats will be left hanging high and dry.
I personally do not trust financial statements much here. In my sector I know quite well how easily things would go south, I have no reason to believe that financial institutions are in any better shape.
Opinion
If you are basing your decision to invest on the belief that you will find someone shortly willing to buy it from you, then you are speculating. There is a good reason that speculators make money, it is because they take risks. In my opinion people should stay away from investments where they do not understand the risk, and no, bricks are not "risk free" investments. It does not matter what your mommy told you.
Disclaimer
Yes, I am a very pessimistic person by nature.
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Point 3/4
Posted by FA at 08:43 UAE time
Although I may agree with Trojan to a large extent - I cannot but comment on a similar sentiment back in 2003/2004 - when EVERYONE and their grannys were predicting a bust.
Truth is - and this is the crux of the matter - no matter how bad things are in Dubai - lack of transparency, high prices, exuberant investors, speculators and oversupply fears - things are not much better anywhere else. Add to this the attractions Dubai has over competing markets (and even the top tier cities which are mentioned often (London, New York etc..)); security, capital growth, standard of living, large scale infrastructure development, growing business and the basic fundamentals of a high growth region (Middle East and the sub-continent) - people WILL come and they WILL occupy and they WILL choose Dubai over any other regional city-period. Slow down? - maybe, bust? - have heard it ad nauseam.
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