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Brushing off property pessimism
Asteco is the largest property consultant in the UAE and managing director Andrew Chambers is a veteran of the real estate industry, having worked across Asia in Hong Kong, Manila, Singapore and Bangkok. He has lived in Dubai for six years and seen it grow from desert sands to towering skyscrapers in half a decade. But what does this meteoric growth mean for the emirate and its property market?
What is your view on the prospects for the local real estate market?
The fundamentals of this market are quite different from other places around the world. Vacancy rates are nearly zero, there is a demand from the real industry and from tourism, transport (shipping & airlines), financial, distribution and supply, together with secondary industries: media and education.
All of these are labour intensive and require quite a sophisticated property market. So the demand is high and has put the rates up into the top 10-20 countries in the world.
This is a fundamental in the market that whatever is happening today, I don't think goes away. Are we getting a leveling off of prices? We are getting a drop in the rate of increase.
So you think there will be a marked slowdown?
Yes. There will a slowdown but I can't say how much. We predicted at the end of this year and the first half of 2009, we would see a leveling off of prices in new released stock. A new tower coming on the market now is the same price as six months ago. So this is significant that we are seeing this steadying of prices. I don't think we will get a 10 percent drop in house prices by 2010, I don't agree with the Morgan Stanley report.
Construction costs, after months of rising, are now falling. What effect does this have?
You have to look at the exponential curve of the cost to build, the cost of labour and land, and the final cost to the buyer. Steel prices are dropping as we speak, so are concrete and cement prices. So we are immediately seeing a potential cooling down of inflation which is a good result for this region. As the world financial crisis continues and inflation drops here, it will stabilise the market.
Will there be sweet spots that emerge in Dubai? What areas are becoming the London equivalents of Kensington and Chelsea and the more down market areas of Peckham and Lewisham?
The places that will show growth will be the DIFC, Old Town, Jumeirah Lake Towers and some parts of Deira. Other places like Palm Jumeirah will also hold up well because they can't grow much more, there is a finite space. Where you will have a lot of the same stuff coming online is Dubailand- this may face competition.
There has been speculation recently that British expats have been selling their second homes because of doubts over the market? Is this true?
A lot have called in the last month, but hardly any have sold. We've had queries from those who bought about two years ago on the Palm Jumeirah or in Jumeirah Beach Residence who have doubled or tripled their money.
We are advising them not to jump out of the market because we are still selling properties at the top price there. British expats make up roughly 10 percent of the homeowners in Dubai.
To give a broader view, in the last four to five years, we've had speculative buyers from the UK, Ireland, Iran, India and the GCC, who have bought to ‘flip'. They pay 10 percent and hope to sell in a month or two. In the last year, however, this has changed. Buyers have been those with sufficient cash or mortgage finance to see a project through to completion. It's become a market for more serious investors.
Rents for villas and apartments have soared in the last six months. Do you think that Dubai will become such an expensive place to live that people will be put off?
It is a big negative and it is preventing some people coming here. It is preventing the numbers of people coming here that some companies would like to see. Look at architectural consultancy practices. They have brought over five people a year and put them in a villa when they would rather have bought 10 or 20. It's just too expensive
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Comments 1-10 of 10
Posted by jim, Dubai on 17 November 2008 at 11:16 UAE time
you can stop a sinking ship... you can release as many pr articles as you want to try to pretend the ship is not sinking but nobody is going to believe you. maybe you haven't noticed that the word is out that the crisis has stimulated what is expected to be an even further plummet in the real estate market. it's time to find yourself a life boat chambers.
Posted by Stephen, Dubai on 17 November 2008 at 11:06 UAE time
A real salesman... you can sell ice to eskimos.... who will you try and hoodwink next with your "expert opinion"... it's so sad to see someone of your calibre and in your top managerial position offering such poor advice. Remember, peoples families, livelihoods, financial security are at stake here....What Dubai needs are end users for the properties being built, to make the growth in property sustainable. There are no middle and low-income housing projects in Dubai, everything is big villas, big apartments... by middle and lower income I mean joint income households earning AED 15,000 – AED 25,000 as middle income and AED 5,000 – AED 14,999 as lower income. When have you seen a development advertised in any of the newspapers that has modest 3 bedroom and 2 bedroom houses... no modest community developments... how many people in Dubai earn over AED 15,000 a month in all honesty, other than European/American/South African/Australian and Kiwi expatriates.\r\n\r\nRemember majority of people working in Dubai, are Indian, Pakistani, Philipino, Bengali, Nepali… and even considering joint income households, I don’t see how many can reach the AED 20,000 mark on monthly income. Just doing a simple loan amortization calculation in excel, a 1 Million Dirham property at 7% interest over 20 years will cost you AED 7752.99 per month on mortgage payments alone, without considering management levies, insurance, utilities, etc. For an AED 20,000 income household, this is already almost 40% of the family income... and realistically before all the property bad news started, what could a family of say three with AED 1 Million in an approved home loan purchase in Dubai. Maybe now with the property price correction a studio or 1 bed apartment in Discovery Gardens or International City, and if the bank will even give you a loan. You said “The fundamentals of this market are quite different from other places around the world. Vacancy rates are nearly zero, there is a demand from the real industry and from tourism, transport (shipping & airlines), financial, distribution and supply, together with secondary industries: media and education” I urge you to take a leisurely drive after work and look at the marina, JBR and all the other high market developments there. See how many lights are switched on at night. In your educated/informed opinion the demand is for tourism, transport, financial, distribution, supply, media, education. So I guess the everyday Egyptian tour guide, Pakistani bus driver, Philippine bank teller, Bengali truck driver, Indian call centre operator and school teachers are the next generation of property owners in Dubai. In the exclusive developments in Dubai, like the Marin, Old Town, etc…how many apartments are actually occupied, and even those that are occupied, how many of them are actually owned by end users and not being rented. Real property ownership, by end users is the cornerstone of sustainable property market growth.
Posted by Peter Higgins, Dubai, UAE on 11 November 2008 at 11:10 UAE time
We shouldn't be afraid of falling prices but of a stagnating market because sellers are still expecting absurd prices. It is these sort of people that are sustaining the problem.
Posted by Parag, Abu Dhabi, United Arab Emirates on 11 November 2008 at 07:59 UAE time
Prices are falling like a 'Plain high in the Air without its engine on'. Just Look at the number of advertisement coming in the News Papers for Sale/Resale/For Rent/For Lease etc. Its has more than doubled since past three months.
People (who had purchased/invested in the property with a view to earn tonns of money in short time frame) have already started offering their property for zero premium, far lower than the developer is asking currently for the same units.
This market will not be saved from a major crash, World is very small now and the chain effect of other economies has to come in this market. These guys have blown a bubble that they helped build! The speculators are fleeing my friends and this I'm sorry was the true foundation of the market... Speculators were from Developed countries of the world who had lot of money and less opportunity in their home market. Its not that they now have opportunity in their home market, but its because they had incurred huge lose from domestic market and in order to sustain, they need cash and hence they are pulling out money from market over here in UAE
This correction will be the best thing that can happen to Dubai. Property prices will fall dramatically so that the middle class man can afford the average property
Posted by Raj, Dubai, UAE on 10 November 2008 at 16:39 UAE time
Yawn!
Posted by Paul King, Dubai, UAE on 10 November 2008 at 11:33 UAE time
Please, Please, Please if you are interested in buying property in Dubai do not listen to people like Mr. Chambers. Dubai property is ready to implode! You can twist & deceive the facts only for so long, but eventually nature takes it's course. "The force of a correction is equal & opposite to the deception that preceded it!" Dubai is the gold medal holder of promised dream locations and the original Real Estate Brokers should have many "Oscars" now for their performances portraying Professionals! Most couldn't get a job bar-tending in other markets.
This correction will be the best thing that can happen to Dubai. Property prices will fall dramatically so that the average man & woman can afford the average property and the quality of all involved in the process will have to seriously increase to sustain growth in the future. From Construction, through the developers and onto the brokers, quality needs to improve from it's current rating.
Also, in a desert environment, property is a consumerable! Just check out the Las Vegas property market over the last 5 years. You can't give the older stock away because it wilts like a cucumber "left out" in the harsh desert environment!
Posted by michael, Dubai on 9 November 2008 at 17:54 UAE time
I agree with bandaid... there are too many real estate companies out there flooding the media with biased advertorials and "articles"... many brokers have really elevated the propaganda vehicle over the past few months and it takes a dummy not to read between the lines! This market will not be saved from a major crash, just as it was here in 2005 when the DFM plummeted! These guys have blown a bubble that they helped build! The speculators are fleeing my friends and this I'm sorry was the true foundation of the market... The end users who got sucked in (including myself will likely carry the fallen markets burdens for years, maybe decades!) good luck Dubai and realtors trying to fool more people into the poorly regulated rollercoaster that was once known as the "Dubai dream"... many will soon realise that it's a long nightmare.
Posted by brandaid, Dubai on 30 October 2008 at 19:43 UAE time
Come on, get real! "A lot have called in the last month, but hardly any have sold", reading between the lines...that's because no one is buying. Prices are falling like a lead balloon. Look at the number of people that are selling their units for zero premium, far lower than the developer is asking currently for the same units. This is bad and getting worse and since Andrew is trying to make money for his company, he will not tell you the truth. I'm in the industry and it's very bad right now, only sales completing that were done in September, there are almost no sales this month, the figures being used are a couple of months out of date, wait till January and see how bad things get here.
Posted by Simon on 25 October 2008 at 19:44 UAE time
It is amazing to me that the head of Asteco does not know what he is talking about!
In the last week property prices on Palm Jebel Ali have collapsed! Waterhomes previously selling for 6.5 to 7mil-dhs can now be found for 3.8mil-dhs. Signature Villas have plummeted from 190% premiums to 100% premiums. Garden Villas have dropped the same.
Jumeirah Golf Estates can now be bought in the market for last years COST price = ZERO profit/premium
Next will come Dubai Marina...and the domino effect will set in.
I could go on and on and back economic fundamentals especially with regards to 'money supply' to back everything up but there is not enough space here to do it>
And a man heading one of the UAEs biggest real estate agents doesn't know the market. I own a Real Estate Company and believe me...the facts are very different to that being talked about in the article.
Posted by Trojan on 25 October 2008 at 16:02 UAE time
I think if I read one more of these intelligence-insulting interviews I am going to throw up! Come on people, what do you expect from this guy or every other salesman or developer? Even if the house is burning down, do you seriously expect them to shout "fire"? I have seen this and experienced it first hand during the US real estate bubble: high school diploma grads turned sales agents acting like economists and trying to convince everyone that the "fundamentals" are there and that prices will never go down. Mr. Chamber's claims about fundamentals and demand from the real industry - whatever that may be - are nothing more than sound bites that everyone in the industry got used to repeating like a broken record. For one thing, the kind of high-income demand that you need to support Dubai's massive buildup and high prices can come from only one industry: manufacturing. Manufacturing is the only industry that can provide high paying jobs in large enough numbers across a wide spectrum. Hotel workers, bank tellers, ship yard workers, airline hostesses and mechanics, and warehouse stockers just can't afford to rent a place of their own in Dubai, let alone buy. Average wages in service industries are much lower than those in manufacturing, and only a minority - the top execs - are paid high salaries. Education....when was the last time you heard of a wealthy college professor? Entertainment....except for the top execs and movie stars, most everyone else in that industry struggles to pay bills. I saw it in Hollywood, and Dubai is no Hollywood and will never become a Hollywood. So where will the demand come from???? And what low vacancy rates is he talking about? Has Mr. Chambers taken a night-time drive recently through Dubai's newer developments to see how many lights are on?
For all of Mr. Chambers' assurances and claimed insight, he and many others fail to see the doom written in their own claims. If prices are indeed flat as he claims, that in itself is a disaster for Dubai's real estate. Speculators, who dominate the market, are not in it for even a 5% return. A mere drop from double digit returns will cause these speculators to quickly and abruptly pull out, leading to oversupply and price decline and a snow balling effect. This is exactly what is happening in the US: bad news leads to more bad news, and declines lead to more foreclosures and declines.