[forestfire]

Dubai Speculators Quit as Lending Drought Bursts Desert Bubble



Dec. 4 (Bloomberg) -- The classified ads in Dubai read like an obituary for a real-estate market that until a few months ago seemed immune from the global credit crisis.

A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov. 25 edition of Gulf News, the United Arab Emirates’ biggest newspaper, with the headline: “DIRECT FROM OWNER DISTRESS SALE!!!” Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 percent.

“There is panic in the market,” said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties.

The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing.

“Dubai is more precarious than it has ever been,” said Christopher Davidson, author of “Dubai: The Vulnerability of Success” (2008, Columbia University Press). “If the property industry collapses in Dubai, it will be finished. Dubai’s relative autonomy will come to an abrupt end.”

The emirate’s push into luxury property developments and tourist attractions was diversification on “paper sand,” said Davidson, a professor of Middle Eastern affairs at Durham University in the U.K.

‘Nasty Downturn’

Real-estate prices may drop 20 percent or more, analysts at EFG-Hermes Holding SAE, the biggest publicly traded investment bank in Egypt, said in a report this week.

Nakheel PJSC, the Dubai state-owned developer of three palm-shaped islands in the Persian Gulf, said Nov. 30 that it is scaling back or delaying work on some of its $30 billion in projects, including the 62-story Trump International Hotel & Tower near the Mega Yacht Club on the trunk of Palm Jumeirah.

“In such a nasty downturn, which we are seeing now, they are just not immune to global events,” said Michael Baer, founder of Dubai-based Baer Capital Partners and great-grandson of Julius Baer, who started Switzerland’s largest independent wealth manager. “Maybe the boom is over for the time being.”

The sheikhdom may need help from Abu Dhabi and the U.A.E. to service its debt, according to Moody’s Investors Service. Dubai borrowed $80 billion to finance its transformation and make up for a lack of natural resources. It has just 4 billion barrels of oil reserves, compared with Abu Dhabi’s 92.2 billion barrels.

‘Healthy Correction’

Dubai officials say the emirate can weather the storm.

“The real estate sector is witnessing a healthy correction,” Mohammed Ali Alabbar, chairman of Emaar Properties PJSC and head of a committee studying the effects of the global credit crisis on Dubai’s economy, said in a Nov. 24 speech. “This is a consequence of global financial conditions and is inherent to the very nature of the market.”

Dubai will meet its debt obligations, he said.

Baer said he is optimistic the boom will return if the government takes the right actions. “There will be layoffs, they will have readjustments in asset prices and maybe they will have more careful accounting practices,” he said.

Led by Sheikh Mohammed bin Rashid al-Maktoum, Dubai attracted investment with no income tax and free-trade zones. Dubai, the second-biggest of the U.A.E.’s seven states, benefited from an inflow of international investors eager to tap the Gulf’s wealth after a six-year surge in oil prices.

Five-Year Boom

Real-estate values surged fourfold over the past five years, fueled by a supply shortage and an influx of expatriates. Rising commodities prices drove inflation, which accelerated to a record 11.1 percent in the U.A.E. last year. Dubai opened its property market to foreign investment in 2002.

Borrowers tapped mortgages for as much as 90 percent of a property’s value to buy homes on the manmade fronds of the Palm Jumeirah and villas with gardens or golf-course views in developments such as Emirates Hills, The Springs and The Lakes.

Now the credit crunch is coming to Dubai. It’s being aggravated by oil prices that have tumbled 68 percent since reaching a record $147.27 a barrel on July 11.

That will mean less interest in buying third or fourth homes in Dubai, said Gabriel Stein, a director at London’s Lombard Street Research, which provides economic analysis.

“There are bound to be white-elephant developments,” he said. “If it was built on the premise of ‘build it and they will come’ then that will now turn out to be a mistake.”

Bargain Villas

Banks are tightening lending or freezing it altogether. Amlak Finance PJSC, one of the U.A.E.’s biggest mortgage lenders, said Nov. 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on Nov. 11 and reduced the amount it will lend for villas to 50 percent of the price, from 80 percent.

The cost of a seven-bedroom villa on Palm Jumeirah dropped to as low as 19 million dirhams ($5.2 million) last month, from 30 million dirhams in September, according to the Dubai unit of German real-estate company Engel & Voelkers AG.

On Nov. 20, Nakheel and its South African partner threw a $20 million party for the opening of the $1.5 billion Atlantis resort, complete with the world’s biggest fireworks display and celebrities from actress Charlize Theron to singer Kylie Minogue. The hotel’s most expensive suite costs $42,000 a night excluding breakfast.

Two days later, the U.A.E. stepped in to shore up Dubai’s two biggest mortgage lenders, Amlak and Tamweel PJSC. They are merging with state-owned Real Estate Bank, based in Abu Dhabi.

No Longer Immune

Artur Khayrullin moved to Dubai three years ago to escape the Russian winter and invest in the booming real-estate market. Now he’s being forced to sell four apartments to raise cash for his family business in Moscow. They have been on the market for two months.

“With all this oil money in the region, I thought the Dubai property market would be secure from the global problems,” the 30-year-old Bentley owner said, reached on his mobile phone on the beach. Now, “nobody is getting financing.”

The worst may be yet to come as a glut of properties arrives on the market.

About 70,000 units are scheduled to be completed in 2009, more than half of which were originally planned for this year and last, according to a September report from EFG-Hermes.

Buyers willing to commit to purchases before construction are harder to find. So-called off-plan sales helped fuel the bubble with some properties passing through multiple buyers. Off-plan prices have dropped as much as 20 percent since September, according to developer Al Jabal Holdings.

“The speculative buyers were more than 50 percent of the market,” said Eckart Woertz, chief economist at the Dubai- based Gulf Research Center. “They have disappeared.”

Istanbul native Sebat said he’s prepared to leave after 12 years in Dubai.

“I will be in a very big panic and will want to get out of Dubai if I don’t think things will get better,” he said.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net.
Last Updated: December 3, 2008 19:27 EST


http://www.bloomberg...6...&refer=home

The Dubai rampers have gone quiet all of a sudden. Too busy licking their wounds? Lost their jobs? I'm disappointed that they aren't telling us about "great investment opportunities" available in Dubai.

[Caribbean Beauty]

Good post. People need to wake up and smell the sh*t tasting coffee. If someone does not need to buy something to live these next few years, it will not sell and it's "value" will collapse - so all and any discretionary spending is dying, until at least 2015 or so. Nobody needs a Dubai apartment, even an Arab born and bred in Dubai does not need one (as he will have a house or villa already). And who the hell needs a 7* hotel room at many thousands of US$ per night to enjoy a holiday - just a handful of the worlds' wealthiest oil and industrial barons, who are also battening down the hatches. Goodbye overrated Dubai, prepare to return to being a desert wasteland and having to do your own cleaning, when all the underpaid overworked SE asians slope off home

[forestfire]

More bad news, this time from WSJ.

Dubai Lenders Feel Squeeze

DUBAI -- Banks and finance companies that helped underpin Dubai's six-year real-estate boom are facing the unprecedented challenge of mortgage defaults by overstretched borrowers, who had hoped to cash in on soaring property prices in the tax-free Persian Gulf enclave.

Borrowers are being squeezed by higher interest rates and job cuts by major employers hurt by the global financial crisis. Property developers also were affected Sunday as tumbling oil prices hurt sentiment, leading the region's stock markets lower. Dubai 's main index shed more than 5%, and Kuwait 's main index fell 2.6%.

As borrowers run into trouble, officials at HSBC Holdings PLC, the largest international bank by assets offering mortgages in Dubai , told Zawya Dow Jones that the lender has been contacted by a growing number of customers in the emirate struggling to pay their home finance.

At Emirates NBD, the Gulf's largest lender by assets, an official said the bank has witnessed "significant defaults from the speculative community."

However, the official wouldn't disclose if the bank itself has been experiencing defaults.

Mortgage brokers and others involved in the property market said banks and finance companies that fail to respond effectively as borrowers default could face problems. More than 10 such companies in the United Arab Emirates are involved in the mortgage market.

"The possibility of mortgage defaults and property foreclosures is a very serious problem for banks here and one that they need to address very quickly,"

said Chris Dommett, chief executive of mortgage broker John Charcol Dubai.

"Many banks will face a steep learning curve, and some won't be able to cope with it."

Mortgage defaults and foreclosures are new to Dubai since it began allowing foreigners to buy property in 2002. But with Dubai 's once-booming property market slowing, financing has evaporated, sales have slumped, developers and brokers are cutting jobs and prices in some areas have fallen sharply.

"Given the large share of speculative and leveraged investors, as well as the strained credit environment, we are expecting more defaults on mortgage repayments," said Eckart Woertz, chief economist at the Dubai-based Gulf Research Centre.

Although new mortgage laws say banks are entitled to repossess a property if a borrower defaults on a mortgage for more than 60 days, experts said foreclosure may be a lot more difficult in practice.

"There is a mechanism in place for foreclosures, but it's never been tested before," said Charcol's Mr. Dommett. "In practice, the process could take a very long time, and banks could be left with property on their books that they're unable to sell."

At the height of the real-estate boom, mortgage providers loaned as much as 95% of the purchase price of a property and boasted they could arrange mortgages in as few as two hours. Prospective homeowners had easy access to cash and were able to borrow about five times their salary from big lenders such as Dubai Islamic Bank. U.A.E. government figures show that consumer loans rose 46% to almost $15 billion in the year ended June 30 from a year earlier.

But property buyers, who borrowed above their means to finance speculative investments to quickly resell, or "flip," at a profit, now face increased interest rates, hefty payment installments and a property market that is at a standstill. In addition,some of the emirate's largest companies have been forced to cut foreign expatriate workers.




I would be very interested to see the Dubai rampers put a positive spin on this article.
So come on 50 cool 50, ferari -where are you? Your silence is deafening...

[Converted Lurker]

forestfire, on Dec 22 2008, 11:52 AM, said:

More bad news, this time from WSJ.

Dubai Lenders Feel Squeeze

I would be very interested to see the Dubai rampers put a positive spin on this article.
So come on 50 cool 50, ferari -where are you? Your silence is deafening...[/size][/b]

Why? who cares? bunch of know nothing 'acned up' school kids. If the likes of ferrari stayed 'in the game' he's wiped out, the mug. As for the others they're just glorified versions of the annoying fukcers who used to try and flog you timeshares in Tenerife 15-20 years back. Same vacuous patter just a different location.

[angeina12]

This is great post. Globle crisis also affect this beautiful city. Mostly because fo crude price also reduce at its lowest price. But I think people craze about dubai not yet over. When the normal situation come than people like to buy property in dubai.

[Dubai]

angeina12, on Dec 30 2008, 11:39 AM, said:

This is great post. Globle crisis also affect this beautiful city. Mostly because fo crude price also reduce at its lowest price. But I think people craze about dubai not yet over. When the normal situation come than people like to buy property in dubai.

Or more likely when the house prices are normal....

[George Sore-Ass]

angeina12, on Dec 30 2008, 02:39 PM, said:

This is great post. Globle crisis also affect this beautiful city. Mostly because fo crude price also reduce at its lowest price. But I think people craze about dubai not yet over. When the normal situation come than people like to buy property in dubai.

The Dubai craze *is* over.

I live in Dubai and have done for 3.5 years. The bubble is over, and the only people who argue that it is not are those holding property who missed the boat to sell. Very often the 'Dubai is special' argument comes from those who frankly have rather limited experience of anywhere civilized.

Sure, Dubai is better than Delhi or Karachi. Big deal. But is it that great for Europeans and those from developed countries?

For example go to Berlin or any European capital. It is clean, full of modern tasteful architecture. It is safe, relatively cheap (even if I am spending pounds). I can go out and have a beer with my meal at any restaurant at night without having to get a taxi to a hotel bar packed full of hookers. As a European, I need no residence visa. I can meet a girl, kiss her in public, take her home if I want. If I don't like the place, I can say so publicly. If it is sun I am after, then head to Greece or Portugal. If I do my paperwork and research properly, I have proper freehold ownership equal in status to any local.

Dubai is not a bad place, it just is not that great, but it is now spectacularly overpriced. The latest 'Dubai won't crash' argument I heard is that most of the Marina (which appears largely empty) is in fact owned by Saudis who just visit occasionally and are super rich so don't care about prices and won't sell. Sure, Dubai's property market will be saved by Saudi sex tourists!?

Come on guys. You denied it was a bubble all along. You were wrong, we were right. Dubai is not special, economic forces still apply. Dubai (thanks to the stronger dollar) is now absurdly expensive and it is no wonder the tourism sector is now on its **** too.

Prices will drop to perhaps 10-20% of where they are now before it offers reasonable value again.