# Credit Crunch and Property Prices



## Rusty2 (Aug 19, 2008)

Hi guys - I'm coming over to Dubai early next year.... Just wondering if the "Credit Crunch" is having much impact on property prices/rentals over there?


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## kolhoznik (Sep 30, 2008)

Rusty2 said:


> Hi guys - I'm coming over to Dubai early next year.... Just wondering if the "Credit Crunch" is having much impact on property prices/rentals over there?


I think the Dubai market is one like a bubble waiting to burst. Loads of the construction companies are highly leveraged and will likely experience liquidity problems going forward putting pressure on prices both in new buildings as well as finished ones. Overall, it's hard for me to understand what warrants paying more for a m2 in Dubai than in places like London, Zurich, New York, Paris... But then again, it seems that it's a sellers market out there as demand exceeds supply. Not sure if the rental prices are going to go down as people will be reluctant to accept lower returns on the investments they made.


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## DXB-NY (Oct 6, 2008)

i am actually waiting to see what turn the Dubai real estate sector will take. Everything seems so overpriced.


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## grasshopper (Aug 12, 2008)

There's a lot of speculation - people flipping properties off the plan before they have to pay the next instalment. I'm not used to a property market where the majority of purchasers are not end users. 

The rental market keeps going up and up, but I've heard predictions of rentals stabilising once a whole bunch of developments come online next year.


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## crazymazy1980 (Aug 2, 2008)

grasshopper said:


> There's a lot of speculation - people flipping properties off the plan before they have to pay the next instalment. I'm not used to a property market where the majority of purchasers are not end users.
> 
> The rental market keeps going up and up, but I've heard predictions of rentals stabilising once a whole bunch of developments come online next year.


I'm not holding out much hope for the rental market. It's a relatively new city and not every building that is completed is always available for rent. I think it's going to be expensive for a good couple of years - but the bubble will, inevitibly, burst.


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## greatexpectations (Aug 5, 2008)

my guess is that it will burst in the next year or so....

but takes time to go from stagnation to deflation. at the moment rentals are still moving up quickly, although purchase prices seem to have stabilised...


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## Falcon (Oct 4, 2008)

kolhoznik said:


> I think the Dubai market is one like a bubble waiting to burst. Loads of the construction companies are highly leveraged and will likely experience liquidity problems going forward putting pressure on prices both in new buildings as well as finished ones. Overall, it's hard for me to understand what warrants paying more for a m2 in Dubai than in places like London, Zurich, New York, Paris... But then again, it seems that it's a sellers market out there as demand exceeds supply. Not sure if the rental prices are going to go down as people will be reluctant to accept lower returns on the investments they made.



For those who are running out of cash will dump the propertys on the market. Especially financed propertys by Banks. If the financing bank is short on liquidity the run starts to cash in !

Why should it be different to other countrys like US, UK, etc. ?

I expect the bubble to burst within the next 3 months. I am watching the market on fonds and certificates what german banks sell to investors in the middle east property market. 

Actually investors are worldwide in panik and sell off whatever they can, exept Gold.

Lets see and wait.


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## qwert97 (Jun 2, 2008)

Falcon said:


> For those who are running out of cash will dump the propertys on the market. Especially financed propertys by Banks. If the financing bank is short on liquidity the run starts to cash in !
> 
> Why should it be different to other countrys like US, UK, etc. ?
> 
> ...


My thought exactly! I also expect the market to start correcting itself by the end of this year. With the way Dow Jones, Nikkie indices are going and the similar effect in China, Japan and Singapore, the worldwide recession will catch up. Today I read in newspaper that they are going to reduce the financing on new properties from 90% to 80% which further confirms this facts. Banks have been asked not to fund any real estate projects which only point to this fact. Just my 2 cents


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## Maz25 (Jul 6, 2008)

The property market in Dubai lies entirely in the hands of investors, who are very cash rich. A lot of buildings are lying empty, however, their owners have no desire to rent them at a cheaper rate. Leaving the property empty actually propels the rise in the property values. There is also the issue that there are a lot of criminals who buy property here to launder and in their case, selling is really not an option. Until investors start losing money, nothing will change. If you can afford to buy whole floors of a building, you obviously have cash to spare, hence you can afford to be strategic and force prices up!


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## qwert97 (Jun 2, 2008)

Maz25 said:


> The property market in Dubai lies entirely in the hands of investors, who are very cash rich. A lot of buildings are lying empty, however, their owners have no desire to rent them at a cheaper rate. Leaving the property empty actually propels the rise in the property values. There is also the issue that there are a lot of criminals who buy property here to launder and in their case, selling is really not an option. Until investors start losing money, nothing will change. If you can afford to buy whole floors of a building, you obviously have cash to spare, hence you can afford to be strategic and force prices up!


Good points. However I read somewhere that people are having problems in paying installments hence they have to spin off properties in order to pay for the installments. Its simply about demand and supply and the law of economics. Its just a matter of time.


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## Maz25 (Jul 6, 2008)

qwert97 said:


> Good points. However I read somewhere that people are having problems in paying installments hence they have to spin off properties in order to pay for the installments. Its simply about demand and supply and the law of economics. Its just a matter of time.


True, however this will mainly affect families who are investing into their future and interested in getting a home, rather than building up a huge property portfolio. Selling and buying properties can sometimes be a strategic decision taken by investors; property prices rise so fast here that by the time the deeds are in place, there is already a profit to be made. Hence you sell off, invest the profit and make even more money. People who have the means to do this won't be affected that much - their invesment is based entirely on risks to begin with and they are very much aware of the fact that they stand to lose money if it all goes wrong.

It will be interesting to find out what happens now. With the stock markets crashing, a lot of rich people are panicking but it remains to be seen what they will eventually do with their investments (mind you, for a lot of them, even if they have lost billions, they'll feel it about as much as you would feel the loss of a few pennies!!!)


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## Falcon (Oct 4, 2008)

Maz25 said:


> The property market in Dubai lies entirely in the hands of investors, who are very cash rich. A lot of buildings are lying empty, however, their owners have no desire to rent them at a cheaper rate. Leaving the property empty actually propels the rise in the property values. There is also the issue that there are a lot of criminals who buy property here to launder and in their case, selling is really not an option. Until investors start losing money, nothing will change. If you can afford to buy whole floors of a building, you obviously have cash to spare, hence you can afford to be strategic and force prices up!



I agree with your points. But what will happen if the Dubai based companys even multinational come to a market consolidation , and find that this place ist to costly on the long term to sell the products and services for affordable price. maybe companys are not willing or in future able to pay rent for their staff for accomodation, and the place becomes less attractive.

A trend comes a trend goes. Big Market Players are like Nomads today here today there so long it attract high yield with minimum risk.

The place where i am actually living has in so far the problem that the property market bubble burst any time.


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## Genghis (Sep 5, 2008)

I think there three fundementals here:

1) The shortage of property forces price increases so it is in the interest of investors to be prudent in releasing their properties to the market

2) Investors are aware that the bubble is getting closer to the pin so investors want / need to suck as much revenue from their investment in the shortest time period. Hiking the rents does this very efficiently. 

3) In order to continue investing in Dubai, considering the current global climate, investors may need to dip into their own pockets to make up the shortfall of the banks money. This is something they will only do at a premium - recovered by way of rental income.

My 2cent


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## qwert97 (Jun 2, 2008)

Time will tell everything. 

My take is that it is better to be cautious and be on the fence for the next 6 months rather than jump into buying something and repent later.


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## Maz25 (Jul 6, 2008)

qwert97 said:


> Time will tell everything.
> 
> My take is that it is better to be cautious and be on the fence for the next 6 months rather than jump into buying something and repent later.



I totally agree. I think the time when us expats could buy property in Dubai and make a tidy profit is long gone! As you have rightly said and taking into consideration everything that is happening not just in Dubai but in the region as well, it would be wise for any potential investors to take a step back and be prudent!


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## Genghis (Sep 5, 2008)

Maz25 said:


> ...I think the time when us expats could buy property in Dubai and make a tidy profit is long gone!


Absolutely - it is not somewhere I would dream of investing (not that I could to anyway!).


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## greatexpectations (Aug 5, 2008)

agreed:

typical cost of somewhere: 5m AED
annual debt servicing @ 5% = 250k AED
annual rental = 300k AED

Conclusion: buying is cheaper than renting @ present, but no huge imperative to buy these days given greater likelihood of correction than appreciation at current time...


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## Mileage (Sep 3, 2008)

It also goes back to the fundamental issue of *why* you are buying the property.

If you plan to live in it and/or have a long term perspective (say 5 years...which is admittedly quite long by Dubai standards) you are likely to be fine if you make a reasonable purchase, but should also expect more reasonable returns going forward.

As others have said before, buying and short term flipping hoping for a fat return has become quite unrealistic and risky. Even before the recent market volatility, while macro trends in the region are expected to remain good, several analysts were forecasting a 9-10% drop in housing prices in Dubai 2009 from the 2008 peaks as new supply comes online. 




greatexpectations said:


> agreed:
> 
> typical cost of somewhere: 5m AED
> annual debt servicing @ 5% = 250k AED
> ...


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## qwert97 (Jun 2, 2008)

Mileage said:


> It also goes back to the fundamental issue of *why* you are buying the property.
> 
> If you plan to live in it and/or have a long term perspective (say 5 years...which is admittedly quite long by Dubai standards) you are likely to be fine if you make a reasonable purchase, but should also expect more reasonable returns going forward.
> 
> As others have said before, buying and short term flipping hoping for a fat return has become quite unrealistic and risky. Even before the recent market volatility, while macro trends in the region are expected to remain good, several analysts were forecasting a 9-10% drop in housing prices in Dubai 2009 from the 2008 peaks as new supply comes online.


In Dubai since the rents are approximately pegged at 7%-8% of the value of property that should bring down the rents as well. I was reading an article where there is a prediction that 40,000 units will be completed in the remaining 2008 and 2009. By the law of demand of supply the rents/ sale prices have to come down. Although the market is tightly controlled and the supply is released slowly, there will be a time when the distress will take over and at time more sellers will be in the market and that should bring the prices as well. In addition based on my readings the sellers in this market are not smart investors and are there to make quick buck. Once the prices start coming down these unsophisticated sellers will panic and will want to sell and that in itself will have a domino effect. That is the economic reality.


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## stevieboy1980 (Sep 9, 2008)

my view is they will remain for rest of this year, go up next year and 2010 and then freeze, maybe a few years after that start going down a little...
there is still a good chance to invest, but be carefull, get free commission etc etc...

My view invest in abu dhabi, there is no where near enough housing there for the construction i have seen on my desk in what there plans are over the next 10 years... crazy!

I have other places of interest in the world rather than dubai...
If you want a return, dubai is ok for 2 more years...

This is obviously MY view only!


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## crazymazy1980 (Aug 2, 2008)

Mileage said:


> It also goes back to the fundamental issue of *why* you are buying the property.
> 
> If you plan to live in it and/or have a long term perspective (say 5 years...which is admittedly quite long by Dubai standards) you are likely to be fine if you make a reasonable purchase, but should also expect more reasonable returns going forward.
> 
> As others have said before, buying and short term flipping hoping for a fat return has become quite unrealistic and risky. Even before the recent market volatility, while macro trends in the region are expected to remain good, several analysts were forecasting a 9-10% drop in housing prices in Dubai 2009 from the 2008 peaks as new supply comes online.


I was having a discussion about this with an architect last night at the Irish Village (I know drinking on a school night - not good ) and the master plan will probably see Dubai increase in population over the next 5-10 years by another 2million (currently 1.37m) yet the targets set for finished units is around 10% of that. Initiatives like Logistics Village will see an influx of 1000's of workers at all levels - all needing housing.

Take the new airport for example. It's expected to have around 150m people pass through it. Heathrow airport has around 70m per year and has a workforce of 30,000!

Couple that with the fact that some investors are not releasing properties on the rental market and the fact they cannot build the things fast enough (plus the much needed supporting infrastructure - power etc) I now don't think there will be any noticeable drops in the forseeable future and the 40,000 coming on line will be swallowed up so rapidly that it will only fuel further rises 

...but I could be wrong...


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## Andy Capp (Oct 5, 2008)

There is no credit crunch here, Dubai is immune to the global economies, in fact it's a microcosm that exists all on it's own and with doesn't need the outside world to expand at a breakneck speed...

Didn't you not know?


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## Genghis (Sep 5, 2008)

Andy Capp said:


> There is no credit crunch here, Dubai is immune to the global economies, in fact it's a microcosm that exists all on it's own and with doesn't need the outside world to expand at a breakneck speed...


I agree Dubai as an entity seems to be immune but the vast majority of property investors in Dubai are based outside outside of UAE and therefore their interests outside of here are effected by the crunch.


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## flossie (Jun 9, 2008)

Genghis said:


> I agree Dubai as an entity seems to be immune but the vast majority of property investors in Dubai are based outside outside of UAE and therefore their interests outside of here are effected by the crunch.


I think Andy Capp was speaking tongue in cheek...................I don't believe half of what the local press says about property in Dubai.


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## Elphaba (Jan 24, 2008)

I have been reading your views with interest, although I would say that when some of you have been in the UAE longer and have a better understanding of the system you may see things differently (right Andy?).

The UAE is certainly not immune to global pressures and we have come close to a banking crisis. It's just that it is not reported in the press. Yesterday the Government announced that all bank deposits in the UAE will be backed by the government to that no one's money is at risk. This has never happened before and is a measure of concern. I am hopring that the powers that be will now appreciate the importance of compliance, regulation and accountability. Some basic accounting skills would also not go amiss as many banks have not been properly balancing their assets and liabilities.

Several major developers have some cashflow problems (although possibly eased by daft buyers at Citiscape last week), so we can expect to see some developments slowing down (this has happened several times before), or even being abandoned (also precedent for this).

Many UAE lenders have reduced the percentage loans that they will offer, as a larger deposit reduces their exposure. Someone earlier calculated the cost of mortgage interest at 5%, but that is way out. The lowest local mortgage rate is now 6.75% and few people will qualify for that. Most will be paying between 7% and 8%.

It is not just rents that have increased over the past year. I calculate that my grocery bills are now at least 20% higher than they were 18 months ago. The introduction and now increase in Salik tolls has proved costly for many too. These are just local issues, let alone all the global factor that affect people living here as many have assets overseas.

-


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## Genghis (Sep 5, 2008)

Elphaba said:


> I have been reading your views with interest, although I would say that when some of you have been in the UAE longer and have a better understanding of the system you may see things differently (right Andy?).
> -


Point taken Elphaba.


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