By Anil Bhoyrul
Many people were so convinced another crash was coming, we nearly started one. Thankfully we were wrong, says Anil Bhoyrul
Back in mid-January this year, I thought the world was coming to an end, again. Dubai World was due to announce the results of its $14.6bn debt restructuring talks, and rumours were rife that a few of its companies could be folded. This in turn would lead to a stock market meltdown, a second spectacular property crash, and a couple extra years of deep recession in the emirate.
None of this quite happened, of course — Dubai World did file a “voluntary arrangement notification” under Decree 57 of the Dubai legal code to help push through a deal by effectively using existing bankruptcy legislation. But even though the net effect was positive, the word “bankruptcy” set alarm bells ringing.
“If you have anything, shares, property, whatever you are holding, I would just sell in a hurry,” one senior economic advisor told me at the time.
And as everyone living in Dubai knows, sentiment and herd effect is everything. If people think prices are falling, they probably will start falling.
By February this year, fears were growing that we were on the cusp on a second property crash. For every expert claiming things were stable, I could find another pointing to 25 percent property price drops over six months in some parts of Dubai. Like any property crash, you only really find out it’s happening after it’s started. Was this the start?
We are now in May. I’m happy to report that I think I may have been wrong, and all the people saying the market was “correcting and stabilising” may have been right. The second crash that never quite was has come and gone.
The Q1 2015 Dubai MarketView report by CBRE said that residential prices in Dubai fell by just 2 percent in the first quarter. Interestingly, the report said the volume of residential sale transactions fell by four percent in the first quarter compared to the year-earlier period although both transaction values and volumes were up compared to the previous quarter. During the first three months of the year, total sales transactions were valued at $1.73bn with 3,896 transactions completed. This compared with a value of $1.2bn and 2,573 deals during the final quarter of last year.
In other words, more money was spent on property in the first quarter of this year than the last three months of 2014. Not exactly a crash. This week also saw the launch of the Emirates NBD Real Estate Tracker. Produced by Markit, it’s a pretty comprehensive effort. It is based on survey data collected from two separate but complementary sources: real estate agents and households across the region. The real estate agents’ segment is based on survey responses from a carefully selected panel of 70 real estate agents in Dubai, covering trends for apartments and villas across the region. The Dubai household survey is based on a representative sample of 600 households based in Dubai.
Measured overall, the proportion of Dubai real estate agents signalling a rise in property prices (41 percent) fractionally exceeded those noting a fall (38 percent). By housing type, this reflected modest increases in apartment prices, while agents noted moderately lower values for villas in the three months to April.
Now admittedly some agents might just be lying, though out of 70 even that shouldn’t skew the results too much. The conclusion to be reached from all this data is that there is no second crash. On balance property prices (more so apartments than villas) are stable or even rising in some parts, and rental values are definitely going up again in prime areas.
There could be many reasons – the report itself points to more sustainable funding patterns, a strong pipeline of quality developments and rising population numbers. And let’s not forget Expo 2020.
I think it could be even simpler than that. Many people (and probably myself included) were so convinced another crash was coming, we nearly started one. Thankfully we were wrong.
And why exactly a real estate crash bad thing? For a overall healthy economy and growth of all other sectors it is important not to have a ran-way real estate prices. Real estate is generally a by product of the other economic activities - technology advances, exports, manufacturing, services, trade and hospitality.
But it seems most of the Dubai journos knows only a thing or two about real estate.
And why cherry pick the data, what you have to say about monthly transactions compare to last year?
Your analysis that prices have risen cause few transactions amounted to 1.2billion is also wrong. It could very well mean that very high value transactions took place during this period, which is natural where high net individuals are seeing value in the slow down, or some high value distress sales took place, or more land deals took place.
The fall in prices (around 10-20% in certain areas) was reported late in the media, those of us in the market saw this happening in Q4. Now sentiment is definitely turning with the weakening of the dollar, higher oil prices and likelihood the Fed will delay rate rises on the weak US data. If you can find the right seller, now is a good time to get in as the tide is turning, and once the tide turns in Dubai real estate, boy does it turn.
â€œBe Fearful When Others Are Greedy and Greedy When Others Are Fearfulâ€
â€• Warren Buffett
A major crash was never on the cards after the doubling of transaction fees and mortgage squeeze in late 2013. But prices have dropped sharply from the peak prices being paid at that time. With Ramadan and a lot of volatility in currency markets ahead it is probably premature to conclude that the correction is done. We have a global equity and bond market crash coming soon that will have its impact in Dubai on property prices... remember 2008?
I work for one of the biggest agencies, Western owned, in Dubai and can tell you the resale/secondary market is dead. It is just off plan projects with attractive payment plans i.e 3 to 5 years after handover which are propping up the market.
Can't see things picking up until Q4.
Can you do an article on net yield and how that effects prices please.
In Dubai we always find a direct correlation (rents/sale price).
And we see people now using peer to peer sharing sites t00 (to maximise yield).
Airbnb.com for beds
justpark.com for spare parking spaces
storenextdoor.com for extra storage
I was looking at ways to handle spare parking and found all these innovative businesses that help improve yield.
Can you write about it please. Thanks!
The resale market is completely non-existent. Today there is so many properties sitting empty with owners reluctant to put into the rental market for fear of seeing the property as "Used". Compounding this rental market is the fact those owners whom do offer their properties for the rental market or through AirBnB are so grossly over priced they too remain low. If owners would realize these factors there is a great opportunity to compete with the Hotel markets. Sadly something has to give as one mentioned in the comments, only deals being done are off-plan as financing is favorable but an exit for such buyers is 10 years out.
So if the real estate prices are now corrected, why don't they reduce the 4% tax on sale back to 2%?
I agree, and mortgage caps should be at 15% again.
Cost's once increased are never reduced again. Atleast not in the real world.