By Alex Delmar-Morgan
EXCLUSIVE: UBS senior analyst says risks fuelled by oversupply, population fall.
Dubai is one of the "riskiest" property markets of the post war era, a senior analyst claimed on Monday.
Saud Masud, analyst at Swiss investment UBS, said problems of over-supply and population shrinkage with thousands of jobless expatriates expected to return home when the schools break up next week, would mean continued pressure on house prices.
“In my view Dubai's property risk profile appears to be one of the highest in the post war era and while one may debate the potential support factor from Abu Dhabi the fundamental oversupply and population dynamics risks are very much there,” he told Arabian Business.
He said the scale of Dubai’s real estate collapse was easily on a par with Hong Kong’s housing crash at the start of the decade - and boom and bust cycles in other markets such as Singapore and Ireland.
“While Singapore, Hong Kong, Ireland are considered property market comparables, Dubai is very unique due to its demographics, supply pipeline and relevance in the Middle East,” he added.
This follows Masud’s stark warning in a UBS research note two months ago that house prices in Dubai could plunge up to 70 percent from their peak in the fourth quarter of last year.
At the time, the bank predicted investors would return to the Dubai market in the second half of 2009 when prices would be at their most attractive.
Speculative interest saw prices rocket during Dubai’s six year real estate boom but investors fled after the global crisis last year - with liquidity also hampering mortgage availability.
However in a report last month, HSBC reported that agreed prices in Dubai rose four percent in April and five percent in May.
In Hong Kong the Asian financial crisis triggered a 70 percent collapse in real estate prices between 1997 and 2003.
Dubai will recover, it has to. But the reality has to be accepted and all the lessons have to be learned big time. The truth needs to come out, no redactions needed, and an intelligent, willing and coping mechanism will evolve. There are too many properties, too few people, there is too little infrastructure and so on. But all of this can be fixed, if the will is there and the people who own this place are committed to making it work. I sound like Omar now, but Dubai is down but not out. Just allow honesty and transparency, and nature will take its course.
Oversupply and a lack of demand are factors that might ease as we enter the next economic cycle, but how is Dubai going to counter the general feeling of mistrust that both domestic and foreign investors are feeling? Genuine end-users were promised a lot during and now many feel hard done by. Have developers and landlords killed the proverbial golden goose in search of golden eggs?
Waht happened to you geriant, the heading of the article made you scared you as well?? possible, but fact, accept it, don't bow to Omar so fast, there is lot to come?
I will not bow to Omar, but thanks for the warning! But you are right Raja, there is much to come, and we have to be prepared like good boy scouts.
It irritates me when pundits lump all Dubai property into a pile like its all the same quality, location, fit & finish, etc. when its not. Some properties may never again reach the prices achieved a year ago while other properties may see their values and demand increase faster than others. Do I believe Studios and 1 Bedroom Flats at International City are going to be in high demand anytime soon? No. But villas at Sports City a year from now will probably see a healthy increase compared to prices today. I believe the quality projects will not only survive but they will thrive and be in demand. All the rubbish that has been built and the rubbish that will continue to be built may struggle for buyers (and suckers!), but to lump all Dubai properties into 1 group is misleading. As far as Dubai as a risky market, let's look at who some of the buyers are...Indians, Pakistanis, Iranians....are their home markets "safer" or do they offer a better quality of life? It may depend on where they live but in general the answer is NO! British buy in Dubai so what is their risk? I have friends in the UK who are crushed under the current tax system. We may complain about Salik and the costs of our imported goodies we buy at Spinneys, but imagine giving back 25% to 45% of your salary for income taxes. Then what's left would be spent on other high taxed items like petrol. That does not sound like fun to me or many of my British friends. This article appears to be geared towards speculators. Comparing Dubai to the boom and bust of markets like Singapore and Hong Kong....why? Dubai needs to focus on end users. If someone wants to come to Dubai and plans on working for a few years or more, I believe buying a quality flat or villa would be a smart move. Yes, I bought and I am happy!!
A report which is realistic of what is still a developing real estate market ...there is clearly a massive over supply, lack of confidence and regulatory naivety throughout Dubai's real estate sector - but long term the current downward spiral will be beneficial in ensuring Dubai can establish value in accordance with demand and supply - rather than speculation and distress actions...expect to see a stabilisation in the market q3 2010 imho....
Recently, we have had 5 consecutive reports about Dubai. HSBC & Morgan Stanley's are very positive while Deutsche Bank, UBS and Reuters are very negative. I personally know the directors of those firms. All their executives one by one thank God for giving them Dubai every single day. Ironically, i organized an event at DIFC where the president of a bank that published a negative report kept on praising Dubai and saying that the crisis is indeed over. After publishing the report, i called the cameraman whom i used to film the event and asked for an immediate editing of the tape / CD. Unfortunately, the fact that my eyes saw is that the president was absolutely positive that Dubai is second to none and that the crisis is over. I am very confused to believe his report or the tape i have!!!! I am soon buying a nice villa in Dubai putting a significant amount of money bcz i firmly believe in this city. I was at the agent this morning completing the papers and i saw in my own eyes at least 10 contracts the lady sold!!!! She is driving a brand-new Mercedes!Business is as usual and the entire office was full of energy and SOLID / REAL transactions. I know the Directors of all the firms cited above and all of them own properties in Dubai and are about to buy more!!! I can give you their addresses!!!
There are some good signs. HSBC tells us that prices have been rising for a couple of months, our own market inquiries confirm this is the case, the banks have started lending again and we'll have the metro in September. I will wait to see if the "exodus after schools" will happen or not.
Omar - markets are based on fundamentals (demand supply, quality) - not what car the local estate agent is driving !!! Shakir - yes those reports maybe true - but there is still a disticnt lack of confidence from foreign investors due to the regulatory naivety in the UAE....this will take years to re-gain - if at all...
Omar, the only thing you have revealed is that you are by far quite the silliest contributor to these pages. That's quite an accolade. No doubt you will take it as a compliment.