By Damian Reilly
As oil prices soar, Dubai's property market could be an attractive place to park cash
Might it be time to consider buying Dubai property again? I only ask because the oil price, as I type, is $116 a barrel, and no one thinks that’s absurd. Certainly, it is unlikely to decline against a backdrop of the worst and most widespread unrest in the Middle East in living memory. The madness in Libya – which accounts for two percent of the world’s daily oil consumption – looks set to worsen considerably, and should unrest spread to Saudi Arabia then the common prediction is the oil price will go over $200, comfortably.
While a price that high would cause pain in economies outside the Middle East, it would mean the GCC countries were pulling more than $2bn a day from the ground. They are currently pulling well over a billion dollars a day from it. That money has to go somewhere – it will trickle down through the system and free up the wheels of commerce, encouraging banks to lend and see states, particularly stable ones, injecting massive investment into infrastructure projects.
It is well known the property market is oversupplied in Dubai – a situation the government has taken steps to address. And obviously individual investors overseas, particularly in the West, are not today so flush as they were during the decade-long property boom which culminated in 2007.
But set against that is the fact that Dubai’s image as a Middle East investment opportunity has been, if anything, burnished by recent events. Where today in the region is more attractive as a destination to park cash? Dubai, and the wider UAE, is stable. It is well regulated. And its infrastructure is built. Between $500m and $1bn a day was believed to have been flying out of Egypt during the worst of the upheaval. Similar amounts will also be exiting the other countries in which uprisings have occurred. It would be surprising if much of that cash didn’t wash up in the UAE.
UAE Economy Minister HE Sultan bin Saeed Al Mansouri in this week’s issue of Arabian Business says FDI in the UAE in 2010 was $70bn, and with the IMF predicting economic growth in 2011 of 3.2 percent - and everywhere else in the region suddenly looking a lot less attractive in the short term - who would bet against that figure increasing considerably this year?
Dubai’s economic problems were front page news around the world when they struck. But compared to what is happening across the Arab world today, doesn’t a request for a standstill on debt interest payments seem miniscule?
There are many, of course, who believe property prices in Dubai won’t pick up for between five years and a decade. But then, only three months ago, nobody could have told you Hosni Mubarak would be out of a job by mid-February. Someone’s got to call the bottom of the market soon. And be right.
A friend who works in Bahrain is looking for a job in either the UAE or Qatar. He keeps going for interviews and doing well, but being told to wait. His head hunter says he is no longer only competing against other candidates from the region, as he would have been only six months to a year ago, but rather he is competing with a massive wave of qualified financial sector workers looking to get out of the Western economies in which they work as quickly as possible, before the austerity measures kick in. A sign of the times. Gulf employers are now able to pick and choose like never before.
Damian Reilly is the Editor of Arabian Business. The opinions expressed are his own.
Whether one thing is absurd or not absurd does not detract from the fact that there is an oversupply of property, huge vacancy rates and falling rents.
Nothing in this article leads me to believe that the oversupply, huge vacancy and as a result falling rents will be reversed in the short term. There would need to be a huge influx of people to get rid of the oversupply, and as we know...you first of all have to have a visa?
I would be more inclined to bet on investing in property in Libya, Egypt (once the dust settles)etc. They still have the same problem...not enough property..
These are the countries that will try and create job growth in the future instead of allowing a few people to steal all the money
I see no sense in trying to draw comparisons between Egypts political situation & Dubai's property market. In such relevance one could even say that I could jump off a cliff and probably stay afloat in mid-air, 'since nobody can tell what's gonna happen in the future'. Ridiculous argument, I know - but that's the point.
Not too sure where the problem is with oversupply. In fact, as companies look to move their offices into a place that is central, well-equiped and safe, an oversupply of housing and office space only means cheaper overhead for the company! Why pay high rents in Doha or Abu Dhabi when you can get an office in Dubai for mere dirhams per square meter, and a one bedroom apartment for 40k instead of 80k!
When you consider Dubai's advantage now, it is simply massive. Excellent infrastructure, safe environment and VERY cheap compared to other regional cities. Dubai is only going to go up; and those who say otherwise are simply deluding themselves. Dubai started to get famous after the gulf war precisely because of investments in infrastructure and housing were paying off, the same thing is happening again.
I think the whole concept about property is about demand and supply so i wish him well if he want to buy probabaly he works for a real estate agency no harm in trying
Its true, Dubai is the only stable place to park your capital in the Middle East today but for that to take place Dubai needs to act fast - Open up property investor visas as a gesture & move quickly with the no sponsorship for business law. Most importantly they need to start a dialogue with their citizens to show them & the world that this is the place where citizens are heard & their queries addressed. Things are going in favor of Dubai as has been before during the Gulf War times & the Iran/Iraq war. Population is coming to UAE & so will the towers start filling again. Cheer up Dubai - Its your Destiny (not made by yourself)
I'm not sure I would agree with all of the premises in this article.
If Dubai is well regulated, in particular reference to property, why are so many people screaming they can't get their money back from developers?
Also, I would think many investors burned the first time around would be wary of running in again. The only investment I can see is a fire sale of investors looking to dump and run.
I'd hope the government would direct these excess billions towards paying down the massive debts weighing on their various holding and shell companies and in savings for when all of the restructured debt comes due
Dubai is like crop growing field on lease when the condition is right every farmer(businessman) rush here to grow its crop once the season is over they disappear and field looks barren so to change this kind of trend the authority has to develope a plan to turn dubai into the garden instead of being used it as seasonal crop growing field
- In the UK on any property transaction once you exchange contracts and pay 10%, if you pull out of the deal you forfeit your deposit. So those people who have paid their relevant instalments and received executed contracts should consider this - the rule is not very different elsewhere.
- To prevent developers from goin AWOL and good people loosing money UAE still needs to prevent this from happening. May be they should consider some sort of holding within the private entity of "funds or property" as a security. Enabling the investor to feel comforted that if they do a "bunk" on off plan property then government can sell the security and disperse the funds to the investors as a ROI, as well as then releasing escrow funds to refund investors. This way only bonafide developers with finacial stability will enter the market.
If Dubai property is such an attractive investment proposition why isn't the surplus cash in Abu Dhabi being used to buy it all up? Surely if the UAE Govt and major UAE asset managers (who have the distinct advantage of access to non-public information) actually have faith that another property boom is imminent they'd want to be the first ones to profit. It's the same logic used for insider trading of company shares, when owners and directors are buying up large chunks of stock they anticipate a substantial price increase & are usually right, I don't see that happening in the Dubai real estate market.
Oil prices hitting $200 mark in the near future (or even close to the July 2008 records highs) would be absolutely horrendous for global growth! Anyone recall what happened shortly after oil spiked in July 2008? Was Dubai immune to the global crisis and did high oil prices benefit the economy then? But this time it'll be different some people will say, please explain why.
The oil price is only high because the whole middle east is now viewed as a powder keg.
Only in Arabian Business's relentless spinny mirror world could riots and civil unrest next door in Saudi and Oman and up the gulf in Bahrain be viewed as a positive for Dubai property!
The oil price has risen steadily from 75 bucks to 115 bucks over the last year. Yet Dubai property has fallen 30%.
Already I know of bankers in London whose moves to the the gulf have been cancelled. The biggest short-term beneficiaries of chaos in this region will be stable democracies in Europe that offer unprecedented safety; in the medium and long term, investments in countries like Tunisia and Egypt look a good bet if they can follow through with the process underway there.