Dubai: House prices in Dubai are still rising, but the rate of increase is expected to slow in the coming year, according to the latest research into the local property market.
There was an increase of just 5 per cent in the growth of house prices in Dubai in the three months to September, compared to the previous quarter.
But according to international property firm Colliers, the rate of growth in house prices has been dropping rapidly since the beginning of the year.
Although house prices increased by 43 per cent in the first quarter, by the second quarter the growth rate had declined to 16 per cent.
Growth in residential prices is expected to slow further as the year comes to an end.
Nevertheless, year-on-year growth in the third quarter was 80 per cent.
The negativity in the market is most notable, perhaps, on Palm Jumeirah, where prices have fallen by up to 40 per cent since September. Some previously much sought-after residences in the Burj Dubai area have also seen price drops of up to 30 per cent.
This phenomenon has been attributed to the fact that an increased number of homes is coming onto the market and loans are hard to come by because of the international financial crisis.
"I think [growth in the property market] is slowing ... but what's happened is the formation of micro-markets.
"For instance, values in DIFC, from a sales and a leasing perspective, are still strong," said James Knowles, director of sales and leasing at Asteco.
The volume of transactions so far in the fourth quarter are low, but this is because people are now more cautious about investing and limited money is available from lenders, Knowles said.
The 5 per cent increase in house prices is also not bad compared to other property markets that have slowed more drastically because of the international financial crisis, he said.
"On the one hand, the index results show a 5 per cent increase in overall residential prices for the third quarter, which is good news. On the other hand, over the past three quarters, the rate of growth has slowed to the point where we expect overall price growth to enter negative territory in the fourth quarter," Ian Albert, regional director for consultancy services, Colliers, said.
Buyers in search of a mortgage used to be able to get a loan for around 80 to 85 per cent of the home value. However, it has become difficult to get pre-approved loan-to-value property loans.
Loans in the 60 to 70 per cent region are now more common.
Knowles said this was not a bad thing, as speculation would decrease.
Showing posts with label Dubai Bubble 2008. Show all posts
Showing posts with label Dubai Bubble 2008. Show all posts
Wednesday, 3 December 2008
Dubai real estate NOT affected by negative equity problems
The full scope of the real estate meltdown in Dubai is not clear and will be evident only after a few months. The Gowealthy Research Team evaluated the Negative Equity Problem in detail and has noted that it has not affected the Dubai real estate market. The term Negative Equity implies a condition in which the value of the asset used to secure the loan slides below the outstanding balance of the loan. High interest rates and a drop in the property prices have forced small-time speculators to undersell their properties in Dubai. But after evaluating prices at the various freehold clusters, we have observed that although there has been a price correction of 30 to 40 per cent at Palm Jumeirah, Business Bay and Dubai Waterfront as well as several high-yield zones, Dubai does not face negative equity problems. Our study reveals that the Dubai Property Bubble has ended; property developers are either scaling back their new projects or discussing mergers/ take overs to grapple with the situation.
Currently expatriate buyers in Dubai are guaranteed mortgages of up to 65% of the total value of the property and national buyers over 80%. Property buyers cannot avail of full mortgage options. It is only recently, in 2007 to be precise, that home financiers and lending institutions started issuing flexible loan packages. Under such circumstances, the issue of negative equity does not arise because buyers are not allowed the total price of the asset as mortgage.
Following the global liquidity crunch, banks and financial institutions in the country have tightened their lending policies and raised interest rates despite government reassurances. A majority of such agencies have even stopped issuing mortgages. Why has this happened? Primarily because, the mortgage crisis-induced credit collapse has restricted banks and financiers from lending money to one another. To overcome the situation, the Government has come up with a 'rescue' plan and announced the merger of the country's top financiers, Amlak and Tamweel into the federally administered Real Estate Bank.
The abrupt disruptions in credit flow have affected both real estate developers and investors, resulting in a general slowdown of the sector. Yet, in stark contrast to reports that failure of risk and recovery models adopted by the region's banks and financing institutions led to the current credit crisis, we note that the bulk of funds were used to finance investment assets like shares and bonds.
Currently expatriate buyers in Dubai are guaranteed mortgages of up to 65% of the total value of the property and national buyers over 80%. Property buyers cannot avail of full mortgage options. It is only recently, in 2007 to be precise, that home financiers and lending institutions started issuing flexible loan packages. Under such circumstances, the issue of negative equity does not arise because buyers are not allowed the total price of the asset as mortgage.
Following the global liquidity crunch, banks and financial institutions in the country have tightened their lending policies and raised interest rates despite government reassurances. A majority of such agencies have even stopped issuing mortgages. Why has this happened? Primarily because, the mortgage crisis-induced credit collapse has restricted banks and financiers from lending money to one another. To overcome the situation, the Government has come up with a 'rescue' plan and announced the merger of the country's top financiers, Amlak and Tamweel into the federally administered Real Estate Bank.
The abrupt disruptions in credit flow have affected both real estate developers and investors, resulting in a general slowdown of the sector. Yet, in stark contrast to reports that failure of risk and recovery models adopted by the region's banks and financing institutions led to the current credit crisis, we note that the bulk of funds were used to finance investment assets like shares and bonds.
Friday, 28 November 2008
Paris Hilton is going to settle in Dubai
Dubai: Paris Hilton could be the latest in a constellation of stars to light up Dubai's property sector, in a possible $2 million (Dh7.3 million) deal with Abu Dhabi-based developer, Hydra Properties.
Hilton, who was famous before she was even born, will add a dash of desert glam to Dubai's celebrity skyline.
"Mr Hilton is having a lawyer look over a million-dollar agreement between a property company in the UAE and Paris Hilton. The deal would give the company 'naming rights' for three years to call a set of twin towers Paris Hilton Towers. The deal currently stands at around $1.5-2million," said celebrity booking agent, Mike Esterman.
Officials at Hydra Properties were not immediately available for comment.
Although Hilton's roots are firmly entrenched in the hotel business, branding a property is just a hop, skip and a jump away.
And there is perhaps nowhere more fitting for a celebrity to flash a smile and name a building than in Dubai, where real estate is very much the name of the game.
As a recent wave of celebrities-turned-real-estate-professionals have found, investors in Dubai real estate are cashing in on a booming economy.
If agreed, Hilton would follow in the impressive footsteps of tennis great, Boris Becker, Formula One champion Michael Schumacher and golf-pro, Tiger Woods.
But if it's glamour you're after, you'd be hard pushed to find a star more focused on glam than Paris.
Of course, aside from those celebrities who want to see their name on a tower, there are other stars here working with local developers who know the bigger the name, the bigger the interest.
There's property heavyweight, Donald Trump with Nakheel, fashion legend Giorgio Armani and Emaar and most recently, bona fide Hollywood superstar, Brad Pitt, working with Zaabeel Properties.
Friday, 21 November 2008
Property agents optimistic about Dubai property market
Several property agents in Dubai predict a bright property market, with the sector expected to pick-up within next six months.
The CEO of Dubai Properties, Mohammed Binbrek, said that the current issue is more due to public sentiment, than due to liquidity or resource availability. Once the fears and concerns of the people are addressed, the business would return to normal.
The same optimism was seen among the respondents of a survey, involving 170 Dubai-based property agents, out of which 77 percent felt that the issues currently plaguing the Dubai real estate sector would vanish in six months time.
Pointing out to other markets, the Managing Director of Better Homes, Ryan Mahoney, said that the markets had a slow phase for a couple of months, and then improved in terms of transactions, depending on the availability of financial lending.
But Mahoney predicts that although the transactions may not rise to previous levels within next six months, the prices would stop falling, and then grow again, which may take about a year.
The CEO of Dubai Properties, Mohammed Binbrek, said that the current issue is more due to public sentiment, than due to liquidity or resource availability. Once the fears and concerns of the people are addressed, the business would return to normal.
The same optimism was seen among the respondents of a survey, involving 170 Dubai-based property agents, out of which 77 percent felt that the issues currently plaguing the Dubai real estate sector would vanish in six months time.
Pointing out to other markets, the Managing Director of Better Homes, Ryan Mahoney, said that the markets had a slow phase for a couple of months, and then improved in terms of transactions, depending on the availability of financial lending.
But Mahoney predicts that although the transactions may not rise to previous levels within next six months, the prices would stop falling, and then grow again, which may take about a year.
Sunday, 28 September 2008
Evictions postpone fall in Dubai properties
Analysts have revised their predictions of a sharp drop in Dubai’s property market, saying a recent surge in property prices combined with a flood of people coming on to the rental market because of a villa eviction campaign will delay any price decrease.
“Demand will rise, and prices will follow as a result,” said Cecilia Rabess, a senior analyst at Investment Boutique.
According to a recent Morgan Stanley report, Dubai property prices were due for a correction of at least 10 per cent by 2010, following a nearly 79 per cent increase since the beginning of last year. As a property-related downturn spreads across the globe, analysts have doubted whether Dubai will buck the trend entirely.
However, last week’s eviction notices distributed by Dubai Municipality to families living in shared villas have led some to believe that a correction may be further off than previously thought.
Two months ago, a one-bedroom flat in the Dubai Marina area was renting for an average of Dh120,000 (US$32,600) a year, according to analysts. By the end of last week, it was nearly impossible to find one for less than Dh140,000. Over the past year, the sale price of villas in Dubai have skyrocketed by 76 per cent, while apartments have shot up 63 per cent, a survey by The National found last week.
Even Morgan Stanley, which first predicted the downturn, is now warning of a soft landing.
“The good news for Dubai is that you have underlying economic strength and, as a result, our base case reflects a soft landing for the emirate,” Sean Gardiner, head of MENA research at Morgan Stanley, said last week.
Andrew Gilmour, an economist with the Samba Financial Group, said the fundamentals of the Dubai property market remained strong. “The demand is there and, so long as they can access the credit, I don’t think you will see a particularly strong downturn too soon,” he said.
However, if demand remained strong and prices continued to rise, ”eventually it will become more a question of affordability,” said Ms Rabess. “Prices can only go up so much before people will no longer be able to afford to live in Dubai.”
Ms Rabess said the Government’s campaign could have been intended to encourage people to move into apartments in places such as International City and Discovery Gardens, which they may have previously avoided in favour of sharing a villa. Eventually, however, it could push people outside of the city.
“Unless the developers start building more affordable housing, people may start looking to places like Sharjah or Ajman for places to live,” she said.
The city began the villa eviction campaign in July, but declared a final 30-day deadline last week for all over-occupied villas in the city. Families in Jumeirah, Umm Suqeim, Al Rashidiya and Abu Hail were hit especially hard.
A spokesman for Dubai Municipality said last week: “No more notices would be issued to villas. Even those families who are sharing villas but have not received notices must move out within the deadline.” Once the deadline expires, violators will have their water and electricity supplies cut off, and landlords would face heavy fines – up to Dh50,000.”
The move comes at a time of increasing uncertainty in the Dubai property market, amid fears that foreign investors and the cash-strapped banks may cut off funding for local projects.
Cash scarcity could destabilise the market, analysts say, and possibly precipitate a fall in prices. Last Monday, the UAE central bank announced an emergency Dh50 billion lending facility meant to ensure banks have enough money to keep local infrastructure and property projects running.
In August, a Morgan Stanley report described Dubai the “bellwether of the whole GCC property market”, saying that a drop in prices there could extend to Abu Dhabi and all of the other major economies in the Middle East. However, barring such a fall, Morgan Stanley predicted that Abu Dhabi could see prices increase by 25 per cent before 2010. Qatar’s property market is expected to increase by 15 per cent during the same period.
“The Dubai real estate market is one of the real Achilles heels of the UAE economy,” said Giyas Gokkent, an economist at the National Bank of Abu Dhabi.
“Demand will rise, and prices will follow as a result,” said Cecilia Rabess, a senior analyst at Investment Boutique.
According to a recent Morgan Stanley report, Dubai property prices were due for a correction of at least 10 per cent by 2010, following a nearly 79 per cent increase since the beginning of last year. As a property-related downturn spreads across the globe, analysts have doubted whether Dubai will buck the trend entirely.
However, last week’s eviction notices distributed by Dubai Municipality to families living in shared villas have led some to believe that a correction may be further off than previously thought.
Two months ago, a one-bedroom flat in the Dubai Marina area was renting for an average of Dh120,000 (US$32,600) a year, according to analysts. By the end of last week, it was nearly impossible to find one for less than Dh140,000. Over the past year, the sale price of villas in Dubai have skyrocketed by 76 per cent, while apartments have shot up 63 per cent, a survey by The National found last week.
Even Morgan Stanley, which first predicted the downturn, is now warning of a soft landing.
“The good news for Dubai is that you have underlying economic strength and, as a result, our base case reflects a soft landing for the emirate,” Sean Gardiner, head of MENA research at Morgan Stanley, said last week.
Andrew Gilmour, an economist with the Samba Financial Group, said the fundamentals of the Dubai property market remained strong. “The demand is there and, so long as they can access the credit, I don’t think you will see a particularly strong downturn too soon,” he said.
However, if demand remained strong and prices continued to rise, ”eventually it will become more a question of affordability,” said Ms Rabess. “Prices can only go up so much before people will no longer be able to afford to live in Dubai.”
Ms Rabess said the Government’s campaign could have been intended to encourage people to move into apartments in places such as International City and Discovery Gardens, which they may have previously avoided in favour of sharing a villa. Eventually, however, it could push people outside of the city.
“Unless the developers start building more affordable housing, people may start looking to places like Sharjah or Ajman for places to live,” she said.
The city began the villa eviction campaign in July, but declared a final 30-day deadline last week for all over-occupied villas in the city. Families in Jumeirah, Umm Suqeim, Al Rashidiya and Abu Hail were hit especially hard.
A spokesman for Dubai Municipality said last week: “No more notices would be issued to villas. Even those families who are sharing villas but have not received notices must move out within the deadline.” Once the deadline expires, violators will have their water and electricity supplies cut off, and landlords would face heavy fines – up to Dh50,000.”
The move comes at a time of increasing uncertainty in the Dubai property market, amid fears that foreign investors and the cash-strapped banks may cut off funding for local projects.
Cash scarcity could destabilise the market, analysts say, and possibly precipitate a fall in prices. Last Monday, the UAE central bank announced an emergency Dh50 billion lending facility meant to ensure banks have enough money to keep local infrastructure and property projects running.
In August, a Morgan Stanley report described Dubai the “bellwether of the whole GCC property market”, saying that a drop in prices there could extend to Abu Dhabi and all of the other major economies in the Middle East. However, barring such a fall, Morgan Stanley predicted that Abu Dhabi could see prices increase by 25 per cent before 2010. Qatar’s property market is expected to increase by 15 per cent during the same period.
“The Dubai real estate market is one of the real Achilles heels of the UAE economy,” said Giyas Gokkent, an economist at the National Bank of Abu Dhabi.
Sunday, 15 June 2008
Global Property Recession - UAE unaffected
In the wake of a looming global recession, property markets worldwide are experiencing major shake-ups that are certain to have far-reaching consequences. As they grapple with rising inflation, oil and food prices, the UK, the US and the Asian real estate markets are increasingly showing signs of a meltdown. But the Middle East, especially the UAE seems to have bucked the prevailing trend. The UAE economy attained an overall growth of 7.4 per cent in 2007 over 2006. Oil revenues averaging US$ 69.1 billion constituted 35 per cent of the UAE GDP in 2007, but it was the non-oil sectors, mainly real estate and construction that made a major impact, accounting for 65 per cent of the Gross Domestic Product
As the UAE economy develops, its real estate sector has blossomed into an attractive investment market, offering solid returns. Dubai is currently one of the world's top ten expensive commercial property markets, according to a report by CB Richard Ellis.
In the study, Dubai debuted at number 10 with an occupancy cost of US$128.49. With a near-doubling of occupancy costs, Moscow has climbed four places to second at US$232.37. Ranked 13th worldwide, Midtown Manhattan is still the priciest market in North America at US$103.43.
As the UAE economy develops, its real estate sector has blossomed into an attractive investment market, offering solid returns. Dubai is currently one of the world's top ten expensive commercial property markets, according to a report by CB Richard Ellis.
In the study, Dubai debuted at number 10 with an occupancy cost of US$128.49. With a near-doubling of occupancy costs, Moscow has climbed four places to second at US$232.37. Ranked 13th worldwide, Midtown Manhattan is still the priciest market in North America at US$103.43.
Tuesday, 29 April 2008
Dubai's Property Prices to increase by 20-25% in 2008
Dubai: Property prices have quadrupled in Gulf Arab countries due to surging demand for housing and office space created by economic growth and windfall revenues from a 5-fold increase in oil prices since 2002. Dubai, the Gulf commercial hub, has already set an annual rent cap of 5% for 2008, tighter than last year's 7% cap and the 15% ceiling of 2006.
Jones Lang LaSalle expects a supply surplus in Dubai between 2010 and 2012. This adjusts the global real estate investor's previous forecast that supply would surpass demand between 2007 and 2009.
Real estate prices and rents in the Gulf Arab region, especially Dubai are most likely to rise by up to 20% in 2008, due to higher labor and construction costs and delivery delays, says market analyst, Jones Lang LaSalle.
Blair Hagkull, Regional Managing Director, Jones Lang LaSalle in Dubai, said, "With the delays in delivery, the specter of huge supply continues to be delayed and you see greater demand... there will also be an increase in labor and construction costs and land prices".
Of 57,000 residential units expected in Dubai in 2007, less than 20% were delivered by September, Cairo-based investment bank EFG-Hermes said in a report that month. It said then it expected a rise of 5-10% in property prices in 2008.
Jones Lang LaSalle expects a supply surplus in Dubai between 2010 and 2012. This adjusts the global real estate investor's previous forecast that supply would surpass demand between 2007 and 2009.
Real estate prices and rents in the Gulf Arab region, especially Dubai are most likely to rise by up to 20% in 2008, due to higher labor and construction costs and delivery delays, says market analyst, Jones Lang LaSalle.
Blair Hagkull, Regional Managing Director, Jones Lang LaSalle in Dubai, said, "With the delays in delivery, the specter of huge supply continues to be delayed and you see greater demand... there will also be an increase in labor and construction costs and land prices".
Of 57,000 residential units expected in Dubai in 2007, less than 20% were delivered by September, Cairo-based investment bank EFG-Hermes said in a report that month. It said then it expected a rise of 5-10% in property prices in 2008.
Thursday, 20 March 2008
Ajman top foreign investments in UAE
Ajman has overshadowed UAE emirates when it comes to drawing foreign investments to UAE, reveal statistics.
According to the latest statistics by the Ajman Chamber of Commerce and Industry, foreigners in Ajman own 33 percent of development projects in the booming city, as against 11 percent in other emirates.
Ajman's annual investment growth rate has been estimated at 6.7 percent on an average by the economic analysts. This economic success has been attributed to the all-encompassing plan adopted by the government there.
The Ajman Marina project General Manager, Azad Nouri, says "The rapid economic growth witnessed by Ajman is the result of distinguished services and incentives that the government provides to draw foreign investments."
Ajman is second to Dubai in adopting a free-hold status, which is an excellent law to draw in huge numbers of investors from both local and international markets. Hence numerous investors have been arriving at the emirate to launch their major projects, as they also get to avail the incentives facilitating issuance of licenses, statistics of interest to developers and businessmen and feasibility studies, he added.
Morever, the investments in Ajman enjoy complete legal and legislative protection, with constantly updated laws that benefit investors. These laws foretell a good future for Ajman, where there are various kinds of investment projects, particularly that of Ajman Marina, which will have a positive influence on the real estate and tourism market.
Ajman Marina will witness the transformation of the emirate into an impressive commercial and residential seaside haven. The project gives the emirate a competitive edge and is likely to create an attractive residential and commercial environment.
The Ajman Marina, with its waterfront lifestyle, spreading across a space of 240,000 square meters, is a luxurious retreat, comprising residential, commercial buildings, five star restaurant, international food chains, sea-view cafes, signature yacht club and extensive shopping mall, apart from various entertainment and leisure amenities.
Wednesday, 19 March 2008
Dubai house prices to top UK property prices in 2008?
Indeed, the divergence in outlook between the UK and UAE property sectors for 2008 could hardly be more vivid. In the UAE, high economic growth rates fuelled by a five-year surge in oil and gas prices is being inflated further by a currency and interest rate regime pegged to the US dollar; and as the Fed cuts rates in the US home loans will also cost less in the emirates.
For local property this means cheap finance is available to buyers whose only alternative is to pay inflated annual rents. One study put the cost of renting a one-bedroom apartment at Dhs10,000 per month compared with Dhs7,500 to buy.
In this atmosphere further increases in house prices look inevitable, with 10-20% appearing a conservative estimate for 2008. And at the same time the UAE mortgage sector is only just really opening for business. EFG Hermes estimates the local mortgage market is presently worth a tiny Dhs16bn and could grow 10-fold over the next five years; and the availability of finance will definitely be a factor in local house prices.
Falling mortgage costs
There is indeed mounting pressure on Emirates mortgage providers to lower their interest rates. Currently market rates stand around 7.5% whereas the newest market entrant Commercial Bank of Dubai offers risk-assessed home loans from a little over 5% to customers with the best credit profiles.
Market competition among the 23 lenders should mean that local home loan rates go lower this year, with US interest rates set to fall further and the dirham's peg to the dollar still firmly in place.
By contrast in the UK a 10-year housing bubble has just burst courtesy of the credit crunch that started last August, and caused the first run on a UK bank for more than a century. Mortgage conditions are now tougher for borrowers, rates have risen and transactions have fallen steeply. House price have been falling for the past four months.
UK boom over
Many economists have pointed out that on any valuation technique UK house prices have become overvalued by anything from 20-50%. In a market correction it is normal for prices to move to an over-correction before reverting to the long term average.
This is the main reason for expecting the gap between UAE and UK house prices to close in 2008: prices stand to fall sharply in the UK while in the UAE house prices still have a lot of upside.
However, there is one final factor that will close the gap: currency devaluation in the UK. The pound sterling has been riding high against the US dollar - due to the well known problems of the US economy - and has therefore made dirham-denominated property cheap in the UK and UK property that much more valuable in dirham terms.
Now that the UK economy faces a series of challenges not unlike those in the US and the pound sterling has fallen in value below two dollars to the pound. HSBC predicts a decline to 1.75 over the next 15 months as the pound devalues to offset the impact of a UK slowdown or recession.
Devaluation bonus
For UK owners of UAE property that will provide a nice gain in value in sterling terms. But at the same time the price differential between UK and UAE real estate will be eroded in dirham terms.
For instance, take the Dhs5.7m price of a five-bedroom villa in New Dubai. To obtain a house of similar size in the UK Home Counties might cost around Dhs9m today. Now factor in a 10% rise in Dubai prices to Dhs6.3m and a 20% decline in UK house prices bringing the comparable home to Dhs7.2m. Then adjust for a fall in the value of the pound sterling and you have cheaper homes in the UK than the emirates.
This is a remarkable phenomenon: When Dubai house sales to foreigners first started in spring 2002 prices were at around a quarter of comparable UK prices in the Home Counties. A little more than five years later and the tables are set to turn.
Tuesday, 29 January 2008
Why Dubai is getting too crowded for comfort
Clare Aggarwal is a “professional landlord and investor”, according to The Mail on Sunday. Her latest purchase was a £174,000 two-bedroom flat in Dubai – “my first venture abroad”. The flat doesn’t actually exist yet – it’s just one of 504 apartments being built in The Torch, a 74-storey building on Dubai Marina, and is due for completion in March 2008. Nonetheless, according to Aggarwal, Dubai’s increasingly foreigner-friendly property laws – foreigners can buy freeholds, although only in special zones – have “added another 15% to the apartment’s value and it will hopefully have doubled when it’s all done and dusted”. “I am told the rental income is between 12% and 15% per annum,” she says.
Readers who are on the ball may be starting to wonder a little – how can someone be so sure of rental income for a flat that won’t actually be inhabitable until more than a year from now? Perhaps they won’t then be surprised to learn about how Ms Aggarwal found the property – “I saw an advert in the paper, looked into it and put my money down”. She has, of course, actually been to Dubai, “on family holidays six or seven times”.
But not in the past two years – “I couldn’t afford the flights”.
Ms Aggarwal is far from being the only Briton staking vast sums of money on a building site she can’t even afford to visit. Despite Dubai’s “congested, half-finished roads” and the frequent hazy smogs produced by a “combination of pollution, sand and building dust”, the country has proved popular with other amateur landlords. According to Adam Price of Dubai Select, the UK firm selling sites in The Torch as well as two other huge developments, 75% of buyers are middle-aged British people.
And more developments are being built all the time. It seems the entire city is a building site – “there are more than 250 towers in the Jumeirah Beach and Dubai Marina area alone”, says The Mail on Sunday’s Sarah Hartley, while “billions” are being spent on hundreds of “residential supertowers” in the same mould as The Torch.
It’s perhaps no surprise that property speculators have been attracted to Dubai – figures from Asian banking group Standard Chartered suggest that prices doubled in the three years to the end of 2005. But the bad news for Ms Aggarwal and her fellow investors is that the bank believes “we are getting close to a peak in residential property prices”. In fact, it seems that prices may be falling already. The group’s residential property market index reports that prices have risen by nearly 19% in the year to October.
But that masks huge volatility in the data as well as regional variations.
In five of the last eight months, the index suggested that prices had actually fallen. And in the New Dubai area, which includes the much-vaunted palm-shaped Jumeirah Beach development, prices were down 5% in the year to September.
It’s unlikely to stop here. “Supply is set to grow rapidly in 2007, outstripping demand growth,” says Standard Chartered, quoting data from Egyptian investment bank Prime Group. “Taking into account delays in the delivery of properties, 52,000 and 63,000 properties will be delivered in 2007 and 2008 respectively.”
The bank continues: “Given a reasonable assumption of 7% population growth for the emirate, it suggests this will lead to an excess supply of around 6,000 units in 2007 and 33,000 units in 2008.”
The bank reckons that prices will fall by 20% to 30% over the next two to three years – but that could well be optimistic. Dubai has already seen what can happen when asset prices get wildly over-inflated by rampant speculation – earlier this year the country’s stockmarket dived by 65%. Speculators scrambled for the exits as stockmarkets across the world were rattled by US inflation fears and the threat of falling global liquidity.
It seems more than likely that the same could happen in its real-estate market.When Ms Aggarwal and her fellow overseas investors realise that their off-plan high-rise in the sun could well be worth less than they paid for it by the time it’s actually been built, there will be a rush to offload. As Sarah Hartley puts it, “With a fledgling resale market, it remains to be seen whether demand will ever meet this enormous supply.” We think we know the answer already.
Readers who are on the ball may be starting to wonder a little – how can someone be so sure of rental income for a flat that won’t actually be inhabitable until more than a year from now? Perhaps they won’t then be surprised to learn about how Ms Aggarwal found the property – “I saw an advert in the paper, looked into it and put my money down”. She has, of course, actually been to Dubai, “on family holidays six or seven times”.
But not in the past two years – “I couldn’t afford the flights”.
Ms Aggarwal is far from being the only Briton staking vast sums of money on a building site she can’t even afford to visit. Despite Dubai’s “congested, half-finished roads” and the frequent hazy smogs produced by a “combination of pollution, sand and building dust”, the country has proved popular with other amateur landlords. According to Adam Price of Dubai Select, the UK firm selling sites in The Torch as well as two other huge developments, 75% of buyers are middle-aged British people.
And more developments are being built all the time. It seems the entire city is a building site – “there are more than 250 towers in the Jumeirah Beach and Dubai Marina area alone”, says The Mail on Sunday’s Sarah Hartley, while “billions” are being spent on hundreds of “residential supertowers” in the same mould as The Torch.
It’s perhaps no surprise that property speculators have been attracted to Dubai – figures from Asian banking group Standard Chartered suggest that prices doubled in the three years to the end of 2005. But the bad news for Ms Aggarwal and her fellow investors is that the bank believes “we are getting close to a peak in residential property prices”. In fact, it seems that prices may be falling already. The group’s residential property market index reports that prices have risen by nearly 19% in the year to October.
But that masks huge volatility in the data as well as regional variations.
In five of the last eight months, the index suggested that prices had actually fallen. And in the New Dubai area, which includes the much-vaunted palm-shaped Jumeirah Beach development, prices were down 5% in the year to September.
It’s unlikely to stop here. “Supply is set to grow rapidly in 2007, outstripping demand growth,” says Standard Chartered, quoting data from Egyptian investment bank Prime Group. “Taking into account delays in the delivery of properties, 52,000 and 63,000 properties will be delivered in 2007 and 2008 respectively.”
The bank continues: “Given a reasonable assumption of 7% population growth for the emirate, it suggests this will lead to an excess supply of around 6,000 units in 2007 and 33,000 units in 2008.”
The bank reckons that prices will fall by 20% to 30% over the next two to three years – but that could well be optimistic. Dubai has already seen what can happen when asset prices get wildly over-inflated by rampant speculation – earlier this year the country’s stockmarket dived by 65%. Speculators scrambled for the exits as stockmarkets across the world were rattled by US inflation fears and the threat of falling global liquidity.
It seems more than likely that the same could happen in its real-estate market.When Ms Aggarwal and her fellow overseas investors realise that their off-plan high-rise in the sun could well be worth less than they paid for it by the time it’s actually been built, there will be a rush to offload. As Sarah Hartley puts it, “With a fledgling resale market, it remains to be seen whether demand will ever meet this enormous supply.” We think we know the answer already.
Omniyat CEO dismisses Dubai property ‘bubble’
Omniyat Holdings CEO Mehdi Amjad has dismissed recent speculation regarding the bursting of the Dubai real estate ‘bubble'.
"There is no bubble and I don't believe markets will see a sharp bust. We keep hearing that the supply and demand will be realised in 2008 or 2009, but while I believe that demand will become less extreme, it will continue to outweigh supply."
Amjad believes that a lessening in demand will be healthy for sustainability in the long-term.
"If Dubai has one or two years of inflation, then that's okay. But a decade of inflation is unhealthy. Long-term sustainability is the key for Dubai and the government is addressing this issue successfully."
Amjad said the Dubai market is continuing to absorb new launches, despite projects being delivered. This was displayed with the recent delivery of the International City and Jumeirah Beach Residence projects, he said.
"People were predicting that the release of JBR and the International City would lead to a decrease in demand, but the more than 25,000 units in JBR have been absorbed into the market without causing even a small drop in demand."
Amjad said Dubai is aggressively targeting population growth, which will also lead to growth in demand for real estate.
"The government is building a city for five million people whereas today we have fewer than two. This means that whatever is supplied now will not be enough," he noted.
"Markets are at a maturing stage. Rents are up and there are many people who are currently renting but who intend to purchase homes. This includes people who are on lower to middle incomes who are lower risk takers, and have been waiting to purchase properties.
"Finance and mortgages are increasingly available to these people, so more demand is being created there. There is a shortage in terms of products in this area of the market which we are addressing."
As a result of this new trend, the developer is looking for opportunities in the residential sector, and Omniyat will unveil a new 1.5 million sq ft residential waterfront development at the Cityscape exhibition in October, he said.
While few details are being released, Amjad described the project as a unique and surprising product, offering a combination of residential and retail space.
Amjad believes both institutional and private investors are also driving property demand in Dubai.
"Dubai is now seen as an international hub and foreign investors are being attracted to investing here. The new trust law is also helping these investors to have trust in the transparency of regulations here. Although we are yet to see the law in operation, I think its existence adds a professional structure to Dubai's real estate markets."
The majority of foreign investment is coming from the UK and Europe, but institutional money from the US and Asia is also increasing, he notes.
Amjad has his own development plans for international expansion, beginning with Saudi Arabia, and Abu Dhabi. He intends Omniyat to become an international company by 2008.
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