Posts Tagged ‘property’

Real Estate – Cityscape 2009

Some of the projects touted in the Dubai property market during the boom years showed that the developers behind the schemes had ‘lost touch with reality, and clearly lost touch with the cost and value aspect of the development’. ‘It got to a point where crazy projects were coming up, and people thought that the only way to keep up was to announce an even crazier one. There was no longer any concept of tracking the cost or sustainability of a development versus the returns…Not every project can be the ‘biggest’ and ‘the best’.’
A new report on the state of Dubai’s property sector as the market enters the fourth quarter of 2009 has found that all facets remained in the downward phase of the cycle, with prices and rentals likely to continue falling over the rest of the year

DIP in Dubai Financial Market

The Dubai Financial Market (DFM) followed the rollercoaster mood at international exchanges and closed 1.45% lower after rebounding 2.30% yesterday. Market bellwether Emaar Properties ended 3.61% lower at Dhs2.94. Investment bank EFG Hermes says upgraded its stance on Emaar from ‘reduce’ to ‘neutral’ in the short-term. EFG says it will reconsider its judgment on Emaar until more details about the possible merger with three real estate subsidiaries of Dubai Holding will be disclosed. Shares of logistics specialist Aramex bucked the trend and added 0.64%, closing at Dhs1.58. Aramex soared 33% during the last three months amid extending its presence in Europe. Trading volumes remained stable at the DFM as three shares gained, 23 declined and one stock remained unchanged.

Dubai Hype – Good or Bad

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.

Dubai Freehold

Dubai Freehold

Crunch

Dubai has been hit by two financial crises in the last eight months, which have combined to bring the emirate’s real estate market to a crawl.

As well as the current global credit crisis, Dubai has suffered from its own run on liquidity based around the hype surrounding the dropping of the dollar peg.

Rumours of a possible revaluation caused a number of global investors to speculate on the pegs, bringing billions of dollars into the UAE and, in turn, creating an influx of liquidity and allowing banks to lend at very attractive rates, Ali Al Shihabi, CEO of Rasmala Investment Holdings told delegates at the monthly Dubai Property Society meeting.

When the central banks put an end to speculation by issuing repeated denials, these speculators pulled capital from the region. By July the market was suffering from a major lack of liquidity, causing tightening in lending criteria, and by August, the emirate was undergoing its own mini credit crisis.

The global crisis being felt by countries across the world, has further compounded the problem by causing local markets to plummet and regional investors to question local stock – especially the real estate shares that prop up Dubai’s economy.

Repatriation of capital, Though the market is undeniably slowing, witnessed by the falling trend amongst speculators looking to flip off plan properties, there has been no sign of a halt in buying by end users.

If recent past precedent is any guide then Dubai will be a winner from the current global financial crisis. And remember, in big financial shakeouts there are always winners and losers.

After 9/11 – which at the time looked an absolute disaster for inward investment into the Middle East – Arab investors brought an estimated $1 trillion back to the region from America where it was under threat of seizure. It was this money that first powered up the Dubai property boom.

Similarly the invasion of Iraq in 2003 hardly appeared good for regional confidence at the time. But Dubai gained in the aftermath as a safe haven in a troubled region and from the war’s impact on oil prices that fuelled its trading and service economy.

Capital flight this will be a flight of capital to safety and quality. It could well mean that Dubai property prices have another up leg to come, and that the crisis today is no more than a slowdown in the bull market.

In the meantime, if a fall off in cash flow to under-capitalized developers results in a consolidation of the sector, that will be healthy in the long run.

The losers will be the people who cannot afford their installment payments and who were relying on flipping to cash out before payments became due. Over-stretched speculators both among buyers and sellers will go through a painful consolidation period, unless new capital arrives from overseas very quickly.

Given that their financial distress may be very immediate this is where a shakeout is most likely. However, the market for completed property in many locations is severely undersupplied and will not suffer much – prices for villas are still going up, and even in the middle of last week’s crisis, completed properties were selling in Dubai, although at a slower pace than previously.

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