Don’t believe the Dubai hype; good or bad
Media follows fashion dictates. For many years, glossy magazine stories about the high life in Dubai were the only journalistic diet one could get. Now the tide has changed, and the flavour of the month is doom and gloom stories about Dubai the ghost town, where traffic suddenly moves freely and people leave unpaid-for cars at the airport with maxed-out credit cards in the glove compartment.
There is some justification for this: A recent HSBC report sees average price declines in real estate of 23% in Q4 2008. It is in line with anecdotal evidence and is more credible than another report by Colliers International, a real estate company, that speaks of 8% price declines over the same period. Even rents have started to come down after having been a major contributor to inflation over recent years.
Sales of so-called ‘off plan’ properties, that only required a down payment and were flipped many times before a single brick was laid, have come to a virtual standstill, as buyers recognise that leverage works on the upside, but it works on the downside as well. If many people cannot pay follow-up installments, they are forced to sell in a now illiquid market, or the developer gets back a foreclosed off-plan property without the possibility of reselling it to raise the remaining finances for completion of the project.