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Are we yet to see the worst of the Dubai property market fall?
Tuesday, 21 April 2009 18:18 Mark Dubai - Dubai Property News
More problems in Dubai!
Even though the Dubai property market has become friendless over the last few months there are serious concerns that we have yet to see the worst of the fall in property values in the region. A number of reports over the last few days have highlighted significant issues which have yet to be resolved and could get very much worse before they get better. It would appear that overseas investors are showing very little interest at this moment in time in the once prosperous Dubai property market.

There are a number of issues which are coming into play which include:-

UBS Dubai property report
A report by financial powerhouse UBS has highlighted the potential for further significant falls in Dubai property prices in the short to medium term. Indeed the company is suggesting that falls of up to 70% from the recent market high could still be on the cards with significant oversupply and lack of demand cited as very significant issues.

Even though Dubai property prices have fallen by 40% since the market high in the final quarter of 2008 it would appear that at least in the view of UBS the risk reward ratio is nowhere near the level required to tempt overseas property investors back into the market. While a fall of 70% from the recent market high would no doubt catch the attention of many property investors overseas there are other issues which need to be addressed before any significant improvement in property prices can be attained.

Dubai population set to fall by 10%
It is estimated that over the next two years we could see as many as 10% of the Dubai population return home as the economic recession continues to bite. While the figure of 10% may seem on the high side it is worth remembering that this is an economy and population which grew after the introduction of significant numbers of overseas workers, overseas investors and overseas businesses. A retrenchment of 10% of the total Dubai population does therefore not seem out of the question and it would cause a significant drag on any potential economic recovery.

Property vacancy rates could hit 30%
The same UBS report is forecasting that residential property vacancy rates in Dubai could reach a staggering 30% by the end of 2010 and again have a serious impact upon both the property market and economy of the region. It goes without saying that reduced demand will see landlords reduce their rent across the board which will then feed into a potentially lethal downward spiral where tenants hold the upper hand and landlords are held to ransom.

The reduction in the population and increase in property vacancy rates will also impact on businesses in many areas of Dubai which would then reduce consumer spending further, reduce income for the authorities and place the Dubai leaders in a Catch-22 situation. Do they let the economy bottom out and start again or do they invest more money, to be financed by debt, to inject new life into the economy?

Dubai government debt
As we have covered a number of occasions, the Dubai authorities have taken on substantial debt over the last few years in an effort to expand the economy, attract overseas investors and attract overseas businesses. Prior to the credit crunch and worldwide recession there was no doubt that this investment had produced significant results but there was always a concern that the authorities had taken on too much debt in too short a space of time. It is estimated that net debt is around the $112 billion mark although we have seen significant refinancing deals announced over the last few months which should at least take some of the short-term pressure off the authorities.

Oversupply in the property market
Despite the fact we have seen a significant number of Dubai property developers either exit the market or go out of business there is still substantial oversupply in the short to medium term. Properties are laying empty with their value literally falling day by day and unlikely to change hands in the short to medium term. Against this background of chronic oversupply, falling demand and a reduction in the Dubai population there seems little on the horizon to take away the pain being felt in the region.

This also offers another Catch-22 situation for property investors and property developers, who have the option to reduce their asking prices significantly in order to try and find buyers (creating a potentially devastating knock-on effect on prices), or else hold steady and try to battle through the downturn. However, when you consider the precarious finances of many investors and property developers in the region there are very few that will be able to retain substantial amounts of property, which are non-income producing and falling in value day by day.

Is the Dubai property market set to implode?
While there is no doubt that the Dubai property market continues to attract the attention of many investors around the world, few are willing to invest anything into property at this moment in time. As ever, past performance should not be considered when looking to the future as this can in many cases cloud your judgement. When you consider that the life blood of the Dubai property market, i.e. overseas investors, left the market some time ago it would seem that the foundations on which the property sector was built are now more shaky than ever before.

Even if the Dubai property market was to stabilise and potentially recover in the short to medium term there are many overseas investors who are nursing significant losses and a significantly weakened financial position in their home markets. Overseas investment in Dubai peaked during 2008 and is unlikely to reach those levels for some time, if ever again. Whether we have seen the best of the Dubai property market remains to be seen but the short to medium term omens are not good and despite the authorities trying to "gloss over" any potential problems many investors are already talking about the Dubai property market as a "busted flush".

Conclusion
While it may be incorrect to call the end of the Dubai property market there is no doubt that increased government debt, reduced demand for property, chronic oversupply of property and the potential reduction of the Dubai population do not bode well for the future. The UBS report, one of many negative reports, suggests that we are just over halfway through the full downward cycle in the property market, which could see property prices fall around 70% from their recent highs.

Even though this article may seem something like a doomsday scenario there are many issues which need to be addressed by the authorities, sooner rather than later. If we were to see a significant sell-off this may attract bargain hunters but the substantial floor of overseas investment is in the past and there are concerns it may take some time to return.

This is a devastating report on Dubai. Even if it is half true, it confirms worst fears and will not engender or encourage investment in Dubai property from outside.
As I have said before, MORE people in Dubai need to be marketing the place[ like on visit-dubai dot couk]......for property sales ; shopping; holidays ; gold sales.....anything to bring CUSTOMERS !!
If the customers do not come, then DROP flight and hotel prices so that more can AFFORD a Dubai holiday. Visitors spend MONEY on all sorts of goods. Dubai needs to lower its prices to attract MORE!!
It has been too exclusive!! That won't work in a recession!!

Well I just heard two stories this evening that went:

A year ago someone was looking to purchase a villa that had an asking price of 11 million AED. As he could not afford it, he ended up renting. He recently purchased the same villa for 4 million AED!!!

A 3 (possibly 4) bedroom duplex at the Trade Centre Residence went for 6.5 million AED. Original price was 9.5 million AED.

Sounds like a difficult period for the short and medium term. Were talking about 2-3 years before this market is stabilized considering UBS' research.

Well, just pack the bags and move to Abu Dhabi. There you will find a more stable investment pattern in real estate.

Shall we name Dubai a ghosttown or Chindia town in 5 years?

You tell me

u know its funny though cos when you think about it figures like 11 mil and 9 mil for a shack in a sandpit hardly feels justified. The actual cost from developer without interest must be less than 4 mil..... how do you ascertain the value of property here when values fluctuate every week

olivertwisted wrote:u know its funny though cos when you think about it figures like 11 mil and 9 mil for a shack in a sandpit hardly feels justified. The actual cost from developer without interest must be less than 4 mil..... how do you ascertain the value of property here when values fluctuate every week

Well it all happened when people thought it would go on forever. When freehold was first introduced apartments/villas were bought by the numbers for investment purposes. Properties were being flipped in a matter of days driving the prices up and these were off-plan!. Those that are going to get hurt the most are those who came into the market last. They are now holding mortgages that exceed the value of the property they are paying off.

When will people realise........FOR EVERY WINNER IN LIFE,THERE HAS TO BE A LOSER??

If people think they are all going to be winners , they are crazy........sooner or later, the losers start appearing.....no matter what you do!!

When things are GOING WELL........BRACE YOURSELF FOR THAT KICK IN THE TEETH !!...........IT'S COMING !!

THE BUBBLE HAS BURST IN DUBAI!!..........BUT BY HELL, WAS IT PUMPED UP???!!!! WELL AND TRULY INFLATED !!!

As the article says.......WHAT HAPPENS WHEN A FLOOD OF NEW FINISHED PROPERTIES HITS THE MARKET IN 2010---11 ???

Where are the buyers going to come from ??

Marketing will HELP bring money and visitors in .....but the GREEDY DEVELOPERS WON'T SEE THE 2006/2007 PRICES AGAIN......FOR MAYBE 10 or 15 YEARS!!

RedKite wrote:As the article says.......WHAT HAPPENS WHEN A FLOOD OF NEW FINISHED PROPERTIES HITS THE MARKET IN 2010---11 ???

They are mostly frozen. Many people, who had bought OFF-PLAN, was actually robbed. As a rule developers sold flats with promise to start construction during 2 years. A buyer had to pay 10% downpayment at start and regular monthly payments immediately after signing contract regardless of progress of the construction.

Actually the construction company realy didn't even start the building after 2 years because one-time fine they had to pay in this case was relatively small, but the buyer had to pay regularly even if the project had been frozen.

So any developer didn't lose a lot and don't have many incentives to continue constructing ASAP.

Red Chief from Red Kite..
Dubai is certainly in the RED!!

The only thing is, that surely, many projects are HALF DONE eg tower blocks/skyscrapers etc containing apartments. How can you leave a TOWER HALF FINISHED??

It has to be finished to make it safe and habitable. So , how many high rise apartment blocks do they have to finish ? All those apartments and flats will add to the volume by 2010/11.

I agree that much of the low-rise villa type stuff could well be scrapped. those developers are in a better position because each unit is independent.
There could be BIG problems for the tower companies, though . What do you think?

How much actual MONEY do you think some British expat property investors have lost in Dubai since September 2008 ....total asset wise ??

What is the biggest loss in Sterling asset value [in property alone....not shares] by one UK individual in Dubai , that you have heard....at TODAY's values ?

I do not include the loss of one's job, although , of course, that was being used to finance the property investment/speculation.

With a lucrative job gone and a 40 pc say drop in property value, a lot will be right UP THE CREEK[sorry] without a paddle....... or even an abra !!!
Have many Brits been BANKRUPTED???

Red Chief wrote:

RedKite wrote:As the article says.......WHAT HAPPENS WHEN A FLOOD OF NEW FINISHED PROPERTIES HITS THE MARKET IN 2010---11 ???

They are mostly frozen. Many people, who had bought OFF-PLAN, was actually robbed. As a rule developers sold flats with promise to start construction during 2 years. A buyer had to pay 10% downpayment at start and regular monthly payments immediately after signing contract regardless of progress of the construction.

Actually the construction company realy didn't even start the building after 2 years because one-time fine they had to pay in this case was relatively small, but the buyer had to pay regularly even if the project had been frozen.

So any developer didn't lose a lot and don't have many incentives to continue constructing ASAP.

But that would be in violation of the Trust Account Law( Escrow)

This is reminiscent of what happened to Singapore property market in late 90s. It crashed almost 80% and never recovered from it..

Dubai seems to be going that way..

And with the recent new residency permit announcemets, its going to make things worse.
First reason is tht the govt. seems to be changing its policies at its own will which enough to makes any investor nervous..
second, all the ppl who had been given the 3 yr residency visa for buying freehold properties, will now have to move over to 6 monthly residency permit. It just adds to the cost of maintaining that property..