By Damian Reilly
EXCLUSIVE: Gulf economist who called 2008 crash says 'nasty surprise' looms.
Property prices in Dubai will fall by as much as a further 30 percent in 2010 as the global economy is hit by “a nasty surprise”, the Gulf economist who accurately predicted the credit crunch, said on Thursday.
Dr Eckart Woertz, senior economist at think tank Gulf Research Centre, predicted that rather than a recovery being seen in 2010, further global economic misery could be experienced.
“Are we out of the woods (in Dubai)? I don’t think so. There are so many projects coming on stream. I don’t see a recovery... I mean prices are down 50 percent now, so how low can you go? My initial take was a decline of 60 to 80 percent. We have had 50 percent, so maybe we have another 10 to 30 percent to go, measured against the old high,” Woertz told Arabian Business.
“A lot of the crash has already happened, but don’t think about the old highs, because that is a price you will not see for a very, very long time,” he added.
Unlike many economists predicting a recovery from the global economic downturn in 2010, Woertz said that a time lag between state stimulus packages ending and real demand picking up will cause further problems in 2010.
“We have some stabilisation going on, but the problem is this is mainly attributable to government spending and stimulus. But what happens when the stimulus peters out? Because the job market looks awful. So the spending cannot come from private households under such conditions,” he said.
“I could imagine that, for the real economy, we are in for a nasty surprise in 2010. We could see several consecutive bottoms, rather than a miraculous recovery,” he added.
Even if the global economy does recover quickly, it will not signal the start of an upturn for Dubai’s property prices, Woertz said.
“You have high inventories. Just based on end user demand, without the speculative hype, you can probably have quite a few people moving back to the city without the market moving at all. The point is, you shouldn’t calculate the price of real estate based on your opinion of the market and the hope that you will sell to a bigger fool than you for a higher price...I would say a year ago, nobody made such calculations,” he said.
Woertz, who is currently lecturing at Princeton University in America on Gulf economies and food security, said that the property market downturn could prove to be good news for Dubai in the long run.
“It is good for Dubai that the real estate is going down in the sense that it was pricing itself out of the market… There is still this model of a trading hub, and it is a trading hub. Dubai does things much better than its neighbours. I have just come from Qatar and you cannot compare it, not to mention Kuwait and Saudi Arabia.
"Dubai does things much more efficiently and better than neighbouring countries. There is a need and demand for business services made in Dubai. But not at the price of yesterday which needed to be high because of ridiculous real estate prices,” he said.
Read the full interview in Arabian Business magazine on Sunday.
A nice article written by someone who has no vested interest and who obviously knows his stuff! Standby!
Finally, a sensible opinion. Thank you Arabian Business. Please, let's have more of these.
This article says it all, so maybe it is time for the apologists in the GCC to stop inventing mythical "green shoots" and accept that they have a lot more very hard work to do before the tide turns. If Dubai does revert to what it does best, trade, then maybe there will be a future, but if listening to the increasingly shrill spin is any indication, denial is not a river in Egypt, but a swamp that flows through this city.
Well how can these analyts predict figures. The prices are back up 10%. Although I agree the prices might come down, i am not sure about the prices. A villa in Springs came down to 900,000. And now it is for 1.4 million. So the prices have shot up. I am not defending dubai prices, I am just trying to say is that, good properties, with good views will always hold up their values. Bad constructed properties might see another price drop.
I agree with this Princeton University lecturer, for once we have an objective analysis based on facts and science and someone with a good track record, and not based on "Oh!! it's hard to find a taxi at night, therefore, the economy is great, prices will go up"... Prepare yourself for a bumpy 2010
Hogwash. The unbuilt supply will automatically pace itself to demand. In most segments especially villa's an town houses there is already more demand than supply. The prices have already fallen to bargain levels. Compare what price you get an apartment in Asia next to a railway track littered with sewage to what you get in Dubai and the value story becomes very clear. All this recoovery needs is the continued support of the UAE government in making Dubai an expat homeowner friendly location.
Not even the best analysts in the world could predict the fall of an established instituition like Lehmaan Bros. or the timing of the crash in any region of the world nor can they predict the future now ! ( I know it because I am an analyst) Any Lehmaan Bros. type unplanned event can totally throw all analyst predictions out of the window e.g. unexpected political changes or economic changes in the region making a small proportion of the regional 2 billion people rushing to Dubai to do business or safety can change the whole picture. As long as you can afford and buy property to live in it for long term and not speculation, you will be okay.....
How exactly does one arrive at the soubriquet "accurately predicted the credit crunch" Dr Woertz, together with countless others, suggested that the gold price would rise, that UAE stockmarkets were entering dangerous territory 3 years ago and from 2006, that the US $ is doomed. Hardly inspiring given the numbers of perople advocating the sam ebelief. Correct but not unique. The banner headline I assume is to attract attention but then one reads the article and it's the same trite, meandering prose. I suggest readers search elsewhere for truly meanigful comment and insight becasue it isn't here.
Folks i fully agree with this guy, the nasty surprise he is talking about is most probably that USD will get weaker and will be replaced by new curreny in near future and unlike India and Iran the economies of the Arab countries is strongly linked to the fate of USD and economy of US. So the 99.9% guess is that those who invest in USD will surely get the Big Hittt and as a result of all this the middle east economy will suffer further in 2010. It is to be noticed that certain countries are already changing their oil trade from USD to Yen and Euro. So all the best to people who are still MAD about Dubai properties and are dreaming about another fake jump in the prices. All my sympathies with such people.
To dubaigreens... sure, compare Dubai property next to some asian countries and it looks good price/quality value. Then compare it to a 5-bed house with pool in Miami which is less than half the price and it looks like very poor value indeed. As for supply pacing itself to demand - a look at the boom and crash of the last 5 years rather puts that logic to bed. The path downwards is always strewn with bounces. Look at the stock market after 1929. But the fundamental problems that caused all this mess are not resolved - the whole thing was funded on credit. Governments are printing money like crazy to try to fill the gaps left by a massive credit collapse, but all they are doing is transferring private debt to government balance sheets. The money is still gone. The levels of debt, both private and public, are not sustainable. Low interest rates and lax policy caused this whole mess, yet the present solution seems to be even more of the same. The real solution is an acceptance that growth cannot rely on ever expanding credit, which is effectively stealing wealth from further and further in the future. There seem to be plenty of people who do not know the meaning of the term 'sucker's rally'.