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Villa prices fall by up to 45% amid real estate slump
by This email address is being protected from spam bots, you need Javascript enabled to view it on Monday, 5 January 2009Posted on Tuesday, 13 January 2009
Everything's O.K. for the medium to long run ....past 6 years was a pre-party. The PARTY has not even begun !
Posted by Ned at 13:32 UAE time
It's sad to note that many readers thinking is just short or immediate term ! If you take a medium to long term perspective on Dubai, you will note that the exponential growth of the economy hasn't even started yet because at this time we are just living in a constuction zone. Wait till all or even half of what's planned is built and ready !
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Posted on Saturday, 10 January 2009
What goes up must come doen
Posted by Dubai guy at 00:38 UAE time
Newtons' Law of Gravity - applied to the real estate market !!!
Only in this case, it's not just a matter of demand drop-off, it's also about money supply - when the major Banks in the UAE are too scared to bet on the market, the speculator would be stark raving mad to buy at this point in time !!!
8-10 months from now prices should be back to 2006 levels, that's when 'end-users' may start to trickle back in ... until then, just try to hold on to your jobs !!!!
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Posted on Friday, 9 January 2009
I feel sorry for Dubai
Posted by Aftershock at 01:19 UAE time
The whole situation was very badly managed from day 1. Management skills are very poor across the board….be it RERA, developers, central bank and the list goes on ……The crisis caught them by surprise and their reactions where terrible to say the least
1)Developers kept on announcing unrealistic projects during cityscape (Nakeel Harbour and Meraas Jumirah gardens) and this was the case for the last couple of years (why the hell does Dubai need 3 palms, The world, universe, lagoons and waterfront) This has raised a lot of doubts about the viability and sustainability of the Dubai model. It’s basically defying common sense. Let alone the $20 million Palm party that took place while the property and stock markets were taking a shower!
2)Central bank instructed banks (directly or indirectly) to curb lending. For the last 4 or 5 years credit was so easy in this country…then all of the sudden the global turmoil made them wake up and realize that loans-to-deposit ratios are as high as 150%, so they dried out the market completely. Don’t buy into this 120 billion fund and don’t blame the banks for the lack of liquidity. This is not a bailout; it’s just money available for borrowing from the central bank under very strict rules and regulations (one key rule is to stop lending to the real estate sector) Once a bank asks for money, the central bank takes full control of the operation and imposes strict rules even further
3)Central bank refused to follow the US interest rate cuts despite of extremely bad liquidity conditions. The Emirates interbank lending rate is almost double the global average (Libor) which shows how illiquid the UAE banking system is. I really can’t understand why the UAE didn’t mirror the rate cuts? The so-called “hot money” (AED 200 billion) that was speculating on the dirham revaluation has exited the system and is not coming back in the foreseeable future. This tactic will not bring it bank….in a time where we badly need it!! I hope it’s not a tool to curb inflation, by all means inflation will decline next year without any restrictions…oil prices are 70% down, dollar has soared by almost 25%, real estate has literally collapsed, business confidence, consumer consumption and tourism have sharply dropped. So for god’s sake…where can inflation come from?
4)Last but not least, banks are shooting themselves in the foot. By cutting down mortgages they are basically killing the market they are heavily exposed to. 2009 will witness a lot of defaults and possibly foreclosures because there was absolutely no financail support when these so-called speculators where trying to exist the market. How can you we let go of 70% of the market all at once? Keeping in mind that the vast majority are expats who have no loyalty to this country and will simply sell what they can and jump on the first plane back home. The fastest crash in history was an inevitable result
Basic economics states that the government should ease up monetary policies and lending during an economic downturn. The US has learned from their big mistake during the 1930’s great depression. Thus, they are tackling this crisis with massive stimulus packages and 0% interest rates.
UAE should NOT take advantage of such a serious economic downturn to start structural reform and impose stringent rules and regulation that will only make matters worse. Reform should take place during an economic boom as it has a very negative impact if implemented during a bust. I wonder why we didn’t see these rules and regulation when banks where financing 95% of property value, every tom, dick and harry was easily getting a 250k loan. Where was RERA when investors where buying floors and even buildings, Emaar was selling the square foot for 4000 and 5000 dirhmas in downtown burj dubai (Who will buy a 4 million dirham studio, other than a speculator?) Please don’t blame the speculators only for what happened in Dubai. For sure they are greedy, but it’s the system that made speculate!! Now the system is trying to squeeze them out and they are dragging the whole economy with them (real estate stands for 30 to 40% of Dubai’s economy). Dubai is now the object of criticism and sarcasm in global media cuz of the falling real estate and mounting debt (Newsweek, the guardian and WSJ to name a few) It will be very difficult to restore this lost confidence in the future. I truly feel sorry for Dubai to end this way!!
This market has witnessed a rapid and severe shift in liquidity and credit availability. UAE in general and Dubai in particular are still nascent markets and cannot withstand such a shock. Hence, real estate collapsed, business confidence dropped, lay offs kicked in and rumors spread the market. Unfortunately, the situation was very badly managed!! It should’ve been handled in a smarter way with a much more gradual shift. Of course the crisis caught us all by surprise, but the UAE with it’s financial strength could have easily absorbed this shock i.e. reducing lending rates and credit flow in a more gradual fashion
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Posted on Thursday, 8 January 2009
Buy when everyone is selling and sell when everyone is buying !
Posted by Todd at 17:50 UAE time
....i.e. if you can find financing. Glad that many people are scared to buy right now. I am desperately looking for 85% and above financing to buy a villa urgently before the prices start to go up again. It will be nice if anyone can provide any info. EIBOR is already on its way down and will stay down until US recession is over.
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Take a long term view !
Posted by Strategist at 17:36 UAE time
Middle East including GCC is still a growth market and Dubai is still one of the best places in this region to set up a base to access these countries. In the mid to long term I have no doubt it will boom but days of overnight gains are definitely gone.
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wake up Dan
Posted by Brandaid at 12:41 UAE time
Dan, you obviously have missed something. THIS economic fall is like nothing the world has seen before. The things that you are talking about were started either in Boom times when oil was very high or when the economy of the Emirates was much smaller and based on things other than property speculation. The UAE has become like a runaway train with no one at the wheel and with most speculators coming from outside the UAE and with the recent credit crunch the "Fundamentals"are disasterous for the UAE. You will see when all the results are in after the last quarter of 08 and the first quarter of 09 are in, that the UAE is in for a drastic revaluation.
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This is life!!
Posted by SR at 07:15 UAE time
Price may plunge, even further, may be in negative territory! Some have made money; big money, some will lose their life earnings. This is nothing new because economies move in cycles. This does not mean the UAE is going to fall flat, it will eventually recover and start on another cycle of boom.
BUT, so called astute property investors of 2008, who were lambasting others on the basis that the UAE was unique, it was immune to everything happening elsewhere, property boom was one way traffic, millions are coming to UAE so demand is expected to grow indefinitely; time to realize how short sighted you guys have been.
Remember, investing is not taking risk based on intuition, personal optimism, sentiment etc. It should be a calculated decision based on risk and return, where you feel that return outweighs risk; then that is a sound investment. Otherwise, it would be gambling.
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Posted on Wednesday, 7 January 2009
Choice was yours then and it is now !
Posted by Dan at 17:29 UAE time
Many of us don't need to be convinced about the success or not of Dubai as we have already witnessed it and made great returns over the last 6 years when many sceptics did not believe that Emirates would ever become one of the best airlines in the world, Palm could ever be built, Burj Dubai will ever get started, and the success of many similar projects. Many have even cashed out significant part of our profits and do not plan to abandon Dubai any time soon even if it means a few months, years or decades of slow down.
Just like people looked back to the prices 5 years ago and wished they had invested then they may look back at this period as a big missed opportunity in future. The choice was yours then and it is yours now. I am still seeing many companies moving regional head offices to Dubai everyday ............
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Dubai Bubble
Posted by andrew mcdonnell at 16:19 UAE time
Whilst every nation in the real world cuts interest rates and tries to stimulate and help, here we increase them adding to the pain and woe, when everyone has gone home they wont return !! Drop rates now and lend on those projects that you so eagerly encouraged us to buy.
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Fall in prices
Posted by Reader at 13:15 UAE time
The consultant sums it up the best. Besides prices falling, how many are really having the confidence to buy just yet. The tables will turn to an end-user market and these are normally people who will assess the medium to long term prospect of such an investment and certainly Dubai still ranks among the top 10 in this respect. As the economy revives so will confidence, spending and investment....until that is tangibly felt and sustained, then only will we see an improvement in prices of homes etc.....
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me negative
Posted by paul at 13:09 UAE time
Troy, I do have a negative view with respect to Dubai real estate. I also believe that Dubai is heading into a severe recession, largely as a result of the collapse of this bubble. But the reason I remain here is that I view these developments as positive for me and long term for Dubai.
Dubai costs doubled for my business in the 3.5 years I have been here. Most of that is due directly or indirectly to the real estate bubble which is now finally bursting spectacularly. This was not sustainable.
Rents are falling, employing good people will become easier and many of my fair weather competitors who relied on debt and had few reserves will disappear.
My order book may shrink a little, but I can see it through better than most. So it will clear out the dead wood and leave the healthier better-run companies. Rather like a forest fire, recessions are part of the renewal process in the economy.
All in all, I am very negative in my price and growth expectations for Dubai. But that is exactly why I am still here. As I have pointed out before, Singapore and Taiwan had huge property bubbles in the 90s, but the collapse of these did not destroy those countries. Real business suffered briefly but bounced back more competitive than ever. It was the speculators and property investors who were wiped out. So it will be with Dubai. I expect it will take at least 10 years, and maybe 20 for house prices to recover to 2008 levels. But this is a good thing as it means costs for real businesses will be under control for at least that long and this is important if Dubai wishes to become a business centre.
Property bubbles are not good for business because business needs costs kept low. It is a shame Dubai did not see what was happening and taken stronger measures to avoid this mess, but now the market is taking those decisions for them. A stronger, more competitive (and cheaper) Dubai will emerge but it will take a few years of pain.
I hope this is positive enough for you!
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Misplaced optimism
Posted by The Consultant at 10:23 UAE time
Ned and Clyde, you may be right in your assessment that prices will eventually bounce back, but you are kidding yourselves if you think it will happen anytime soon; we're not even close to the bottom yet.
Comparisons to places like Manhattan, Singapore, Hong Kong and London are dodgy, to say the least. All of the above apart from London are very densely populated islands, whereas there is still plenty of desert left to build on in Dubai, if the demand ever requires it. All of these places have an inherent level of demand from the country's citizens, whereas much of Dubai's demand has come from speculators who are now trying to get out asap, and the rest from expat workers, many of whom will now be worried about their jobs and will be looking to minimise their accommodation costs.
Although the underlying economic reasons for doing business in Dubai are still sound, in the short term there will actually be a net reduction in the working population, as very few organisations are hiring at the moment, and they are totally outweighed by those laying people off. Combine that with the exit of speculators and I think it is likely that there will be spare housing capacity in Dubai for some time to come. Do not assume that this will only affect apartments, either. You only have to look in the papers to see that villa rentals have now started to follow sales prices on the way down.
Please also remember that it took Singapore 10 years for prices to recover from the crash of '97, and they have started to fall again. Similar story for Hong Kong at the same time, and London in the early 90's.
In short, if you are holding on for house prices to recover to Q1 2008 peaks, be prepared for a long wait.
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Don't compare appples with oranges
Posted by Mo at 07:21 UAE time
It always makes me laugh when people compare Dubai prices with the likes of Tokyo, London and Manhattan. These are established places built up over many years, whereas Dubai is a new unestablished city with an 'infinite' amount of space. Please understand people - Dubai is not restricted by space constraints. Thus Dubai has kept building and building. Now there are far too many apartments and villas for the amount of people living here and prices are taking a big nosedive. The global economic downturn was the catalyst but not the main reason for this.
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Missing the point
Posted by Dan at 06:45 UAE time
Ned, you and others hoping for the Dubai real estate are missing the point why people don’t want to buy in Dubai. Even if you have a lot of cash, you don’t want to get robbed.
With the cost of labour in Dubai a house should cost 3/10 of a house in EU or US, or less. Labour cost is the major cost in these countries. Now, if I know the labour cost in Dubai and NO TAXES, why on earth should I pay so much for a house or apartment?
In Sweden you have to pay 15.000 dirham a month to a construction worker. 25% tax on EVERYTHING. And houses and apartments are still cheaper than in Dubai. The same goes for most countries. And in these countries the whole economy is NOT based on real state. That is why you go and buy a hose or apartment in these countries even in bad times.
The point is:
Just because people can afford it does not mean they accept getting robbed.
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Posted on Tuesday, 6 January 2009
Timing the market never works !
Posted by Dan at 21:10 UAE time
WHAT TO DO IN 2009?
1. Timing the market never works. Sellers did not realise that the market peaked last July/Aug and only woke up to the fact by October/Nov. Buyers think the market will now trend down for at least 6 months. My guess is that it will be heading back up by Feb/March. For buyers, having the luxury to choose and negotiate over the right property is more important than bidding on a property in a hot market. The first quarter of the year will represent the best buying opportunities. Sellers need to be educated to aggressively price 'at market' from the first day of the listing. Otherwise they will be following this market down with list price reductions that will net them less in the end.
2. Not all properties have been affected to the same degree by price drops. While some detached housing has experienced decreases of over 45% - town houses and trendy apartment complexes like JBR have fared better. High end properties are off most.
Don't rely on newspapers for pricing. Many times the lowest priced ones are attention grabbers and not the best properties.
3. This is probably the best market in half a decade for people who want to 'buy up'. Prices at the lower end have held their value. Even if your unit is off by 20% from its peak, what you want to upgrade to has probably come down by more than 50%; meaning that you will need even less of a mortgage or cash than you originally planned. Springs for example hasn't gone down as much as the Palm or Jumeirah Islands and will always stay very popular with professional newcomers because of affordability, rentability and location.
4. People looking for bigger bargains will find them in the 'Off Plan' not the Resale market. Those sellers will be fortunate to recover their deposits. So if you want to buy at two year old prices, there will be some great off plan opportunities
5. Finally, a number of new projects will be cancelled this year. Not just from a lack of buyers but because the banks will insure that there will not be an oversupply of properties by failing to provide construction financing. Unless you are sure that your project will be built we would give a pass on new construction in 2009.
WHAT TO LOOK FOR IN 2009:
1. Sales will be higher in 2009. At the outset, sales will start lower than 2008 but by year end, sales will be 5% higher.
2. Luxury & big units will continue to experience modest price declines but lower end studios, 1 bed and townhouses will get higher in prices and will be sort after for rent and purchase.
3. The Rental Market will grow significantly. While more investors will be renting out their units, there are also more people wanting to rent units and this will keep rental prices relatively stable.
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