Yield compression to drive Dubai property prices higher

Dubai rental yields have remained stubbornly high in recent years at 7% to 10% depending on the property. But in the coming four years it is likely that rentals will flatten while property values will continue to rise, according to a study from Al Mar Capital.

United Arab Emirates: Thursday, March 27 - 2008 at 15:31


There are many reasons to expect the return for landlords to start falling. For one thing the cost of funds has fallen with recent Fed interest rate cuts, and therefore the cost of capital to acquire property is cheaper.

This means that landlords can afford to pay higher prices and need a lower return on capital to provide an adequate overall return. Al Mar Capital sees rental yields falling by 2.4% over the next four years.

At the moment Dubai rental yields are very much out of line with other global cities with comparable GDP, and around double the yields obtainable in traditional hub cities.

Ownership levels low
This reflects the high demand for rental property in Dubai and the lack of availability of completed property for sale, as well as high local mortgage rates.

But as more real estate is completed and local mortgage rates fall in line with US rates then the pressure to buy rather than rent will begin to impact on rental levels. At the same time there will be more buy-to-let investment and the supply of rental property will increase depressing rents.

However, what has been happening around the world is that as more investment goes into the buy-to-let market so prices are driven up in the secondary market. In short, landlords are prepared to pay more for less rental income which is called yield compression.

So it is perfectly possible to envisage a scenario in which rents increase by a slower pace than in recent years in Dubai but property prices soar to new highs.

15% house price inflation

Standard Chartered Bank this week forecast an average growth of 15% in Dubai real estate prices with net new demand for 70,000 residential units and a supply of only 57,000. That could be optimistic, said the report, noting that only a third of the residential units planned for 2007 were actually delivered.

As the bank comments: ‘There is a concern that the market is overheated, prices are excessively high and an irrational bubble has formed. In contrast, our view is that the market is underpinned by very strong fundamentals.’

It is certainly true that the sort of yield compression typically seen in a bubble that is about to burst is just not present in Dubai. Indeed, when landlords are more concerned about capital appreciation than their rents that is usually a signal to be worried.

We have most recently seen this phenomenon in the explosion of buy-to-let investment in the US and UK which as driven rental yields to historic lows, and are now seeing the consequences. All bubbles will burst but you do need to have a bubble first.

Dubai is a great investment, They are not only building habital property there but also a huge them park to rival Disney land, a Jurassic theme park with robot dinasoars from the film, sports city with all its stadiums to host world major sporting events (air conditioned) Manchester United Football academy, and to add to all that they're situating the middle east stock market hubb there with a world trade centre, so i get a good feeling about Dubai.
Once the metro sky train system is finished in 2 years most of the transit problems will be under control, and lastly if you bought in Dubai your money is safe and growing, the government will subsidise the property market in Dubai for another 5 years, they cant let i burst, otherwise the country would go into melt down, and they are well funded from the oil they have. Afer 5 years most of the stuff will be built and it should be running itself anyway plus the world economy should have stabilised by then. Do you think they would go to all this trouble just to create a quick fix for a few property speculators???
I think Dubai is great.
Anyway, if your an exec going to work everyday, would you prefere catching the bus in the pissing rain in London or arriving in style in the nice warm climate. I know what i prefere

What do you mean ? how will they do this ?.

friend bought into/was seduced by the Dubai property myth in 2005 whilst on holiday there. Has sold his 2 nearly new apartments in one of the the 'soopa dooper' developments at a loss. Only a small loss, but a loss none the less. There are one or two obsessives on this thread that really need to self moderate their extreme marketing bull 5hit. The lack of credit has nuked the UK buyer out of the water, and that's who the parasites relied on in order to flip. Take care lads and carry on taking the tablets....the floor, or rather this tiny space on a popular internet forum, is yours...

Dubai is a massive bubble waiting to burst.

I loved it once but now it's only fit for lovers of shopping and bling. I bet Victoria Beckham loves it, nuff sed.

By contrast Oman, just down the Gulf, possesses a million times more class, and is a beautiful country to boot, not just a city stuck in the sand.
OK, I'm biased, since I lived there for years.

House prices up 15% in two months and could double
The price of oil spiked to $128 a barrel last week and has been taking Dubai house prices up with it. Even the most cursory survey of price changes over just the past two months shows 10%-15% increases across the board. This is probably the highest rate of change in Dubai property prices since the modern freehold revolution began in 2002.

In the US, the collapse of house prices since mid-2006 has been followed by the sub-mortgage crisis since last August. The policy response from the Federal Reserve has been to lower interest rates dramatically. This will allow banks to recoup their losses by increasing the spread between borrowing and lending charges, and gradually put a floor under house prices.

This dramatic loosening of monetary policy has had the nasty side-effect of stirring up commodity price inflation, most particularly in the oil market. For an oil-exporting country like the UAE, this means huge additional liquidity is flooding the banking sector with money supply rising at 37%.

Dollar peg
At the same time the UAE has its currency pegged to the US dollar so the nation has to track US interest rates downwards. Hence you have interest rates falling at a time of rising inflation, in short very high negative real interest rates.

That means the economy is effectively paying you to borrow money. So is it any surprise that there has been a huge dislocation of funds into real estate, further increasing upward pressure on prices?

This is not over yet by a long way. What message does a gain of 10%-15% in two months send to the marketplace? What greater encouragement do investors need when alternative investments all over the world look sick?

Well, how long will this last? Price gains of this intensity are not usually sustainable for long. But a 50%-100% increase in property values over the next six to 12 months is quite possible. After that the market would move sideways awaiting confirmation of its optimism.

Oil prices
Now with Goldman Sachs predicting an oil price spike of $150-$200 within the next 18 months that would suggest very much high property prices are obtainable and will be sustainable at least within that timeframe.

And let us not forget the supply side argument either. UBS has forecast that new property supply will begin to impact on the Dubai market by 2010, and if that came along with a downshift in oil prices – perhaps due to a global recession – then that would finally signal the correction.

But not before house prices reached very much higher levels than we see in the market today, with even observers from the world’s most highly priced property markets becoming shocked by prices in Dubai. Currently they still find the market good value.

Lurker - YOU ARE LIEING - the above is impossible - any dubai investor knows that - property prices from 2005 have trebled let alone doubled or loss!! you are nuts - even the worst property has more than doubled -

I have just sold a bad apartment with no views and little light for a 130% profit last month which I bought back in 2005

So either I am lieing or you are - Im sure you know who is

thanks made my night that son , and my point for me

No, converted lurker. Ferrari is absolutely correct. There is no way that anyone who bought an apartment back in 2005 made a loss. If you're that convinced, post the details and let us see. Apartment, district, square footage, price paid and when, price sold and when.

I know everyone on HPC wants to see Armageddon, but please give us the facts.

I'll go first - bought a 607 sq ft studio in the Marina in FEB 2007, 3 downpayments of approx £8k each, ie £24k (each payment the currency exchange rate varied slightly), sold and had money in account April 2008 (£62k)

If your friend really did make a loss, he must be the worst businessman in the world!!!!!

To view available properties in uae. visit www.youjad.com

Also u can register at the site, and place an IWANT request, if you are looking for a specific property.

www.youjad.com

Do you create this crap yourself or copy and paste it from the very tightly controlled (bullsh!t) Dubai press ?, and do you actually believe it ?

Ok, I live in Dubai and have done for 3 years. Here is my take, for what it is worth.

Dubai is a bubble, plain and simple. That you could have made money in the last 5 years is not in question. That there might still be profits to be made is also a real possibility. Like any bubble, the expansion can go on far longer than anyone thinks. It did in the US. It did in the UK. The fundamentals are the same. Cheap money, far too much cheap money. Dubai has IRs of negative 10%. That does not bode well for sustainability.

The problem is that from a business point of view, the inflation is killing Dubai's business - well, anything other than oil or construction. Tourism will suffer through higher prices, and expensive air fares. Anyone trying to do media or software development and believed the sheikhs could offer 'a stable low inflation environment' knows that Dubai promises can be broken.

I am also fascinated by some people's convictions that the Dubai government can somehow prop up property prices and 'won't let it crash'. There was a very similar sentiment about the local stock market a couple of years ago. But crash the prices did. Spectacularly. Bail outs from the UAE or Dubai governments? Nope. Nada. Caveat emptor. Buyer beware.

Dubai may have a big disneyworld soon in the shape of Dubailand. It is sunny for much of the year and there are still even a couple of beaches you can get to that have not been taken up with some sheikh's villa or a 5 star hotel.

But who wants to live long term in a country where you cannot view news about the UAE on the internet, unless it is good news, because they censor the internet? Who wants to live in a place where you cannot have a drink without getting a license and going to a poncy 5-star hotel instead of a decent honest bar? Where you cannot hug your girlfriend in public? Where inflation is 20%? Where the roads are populated by drivers whose skills vary between Mr Magoo and a suicide bomber?

I am looking for a nice 4-bed house with a pool to retire to with a mrs and maybe some little georges in a couple of years when I sell my company. Do I...

a. spend close to a million quid to live in a third world country, nestled between some of the most fanatical and dangerous countries/populations in the world, where the government can change the rules overnight without any consultation and where you will always be a second class citizen as a foreigner and where any growth is purely inflationary such that real growth is possibly already negative (unless you believe the govt inflation figures of less than 10%, which no one does)

b. spend 200k GBP for a spanking big house in florida, down the road from the actual disneyworld and not some pale islamic compliant approximation, with fantastic beaches, where english is spoken, you have rights and a proper legal system to protect your interests, and are not in the middle of the future battlefields of ww3 and you are free to say the president is an idiot with the full force of the law and the constitution to protect you?

No one from a free country who has lived in the UAE for more than a couple of years sees it as anything more than a way to make some money and run. No one sees themselves here in 5 years time, let alone 10.

Is there money to be made from property in Dubai? Sure, the bubble might run yet. But anyone who thinks long term Dubai has anything to offer that is better than developed western countries is dreaming. The inflation will kill it as a business prospect long before it gets there.

The people talking down the prospects of a crash are using the same tired lines they used in the US, UK, Spain and Ireland..."no, this place **really** is different from those others". Cheap money = bubble = inflation = crash.

These are fundamental laws of economics. The higher the oil price, the higher the inflation. The only thing that could save Dubai long term is a floating currency and massive interest rate rises to squash inflation. But the guys running it genuinely believe that somehow inflation will all just sort itself out, even though they're pumping up the money supply by 40% per year. The heat must be frying their brains.

Regards

George

Option b I would suggest. Although not Fla even though it is a buyers market right now. I would go for soemwehere in the Rcokies or the carolinas.

Will check out UAE this year as my company are in teh process of obtaining a contractors licence and we will be up there construting pipelines.

Incidentally, I am always amused by those people telling me i have missed out in dubai, they seem to forget about all the better places to invest that have beaten in hands down. Or maybe it is just the relentless dubai spin that means they simply haven't considered that there are better places.

The mrs is brazilian and if you want a gloat about returns, brazil puts the UAE to shame. Checkout the bovespa )) And then checkout the crash of the dirham against the pound as you checkout the rise of the brazilian real against... pretty much every currency on earth. Brazil has a very business-oriented economy, very tough on inflation and not scared to put IRs right up where they need to be to control the growth in a sustainable fashion.

I personally rate brazil as a far better long term bet too. Massive natural resources (including massive new oil finds), democratic government, free press, hardworking and educated population (building aircraft, space rockets, etc). Not to mention the fact that brazilians know how to have a good time (CARNIVAL!), those skimpy bikinis would get them a prison sentence in puritanical UAE. Far better long term prospects as a holiday destination, I much rather see birds jiggling around in bikinis, tight t-shirts and skimpy shorts than dressed up as darth vader, facemask and all.

Regards

George

George, UK folk could have hopped on a plane to N.Ireland, bought a shed and sold it on for 30% more from 2005-2007. Money has been made in property just by owning it/living in it the world over during the last few years. Dubai's gains have not been any more extreme than for example N.Ireland's. Folk who owned somewhere worth 600K in London in 2004-5 have made 300K over the past 2-3 years. Thanks for moderating the delusional on this thread and correcting a few Dubai myths, including the great game of property 'pass the parcel' that has sucked in so many gullible fools.

I love Brazil too. Everything you say is corrrect. I only wish I had bought there too. I don't want to buy from the jumped-up snotty-nosed UK brokers or estate agents who are only interested in big commissions and would flog their own grandmother without a conscience.

Though I am reading adverse press regarding certain areas to buy and not to buy in. What areas would you suggest? Someone said the North was being overdeveloped and that the South was a much better bet. If you are buying to live there it is a different matter but if you are investing then you need to get the area right.

DUBAI IN TOP TEN FOR MOST EXPENSIVE OFFICE SPACE

Office rents in Dubai have soared 30.7% during the past twelve months, making Dubai the tenth most expensive in the world, in fact, more expensive than New York's Manhattan, and could soon exceed those in the white hot Mumbai market, reports CB Richard Ellis (CBRE), a global commercial property services firm.

Mumbai rents had increased by just over 11.3% during the same period, and the city slipped down from the second to the fourth position in the world rankings.

The price per square foot this year in Dubai is $128.45, as against Mumbai at $210.97. An office for 30 people, based on 100 square feet per person, will now cost at $309,600 per year in Dubai, up from $294,960 about a year ago.

London's West End has once again been recorded as the most expensive office market in the world, followed by Moscow, Inner Central Five Wards of Mumbai, and Outer Central Five Wards of Tokyo.

On the whole, Europe, Middle East and Africa (EmeA) region dominated the list of world's fastest growing occupancy costs, accounting for five of the top ten, and nineteen out of the top fifty markets.

Worldwide, about 88% of the 173 office markets monitored, reported higher occupancy costs.

"Office occupancy costs are continuing to resist sluggish economic conditions, and the credit crunch, as they rise even faster than global inflation," said CBRE's global Chief Economist, Raymond Torto.

With the increase in cost being dominated by emerging markets, due to supple-demand imbalance, and dollar depreciation, the Class A office space is seriously lacking in few of these emerging markets

BURJ DUBAI TOWER REACHING THE DIZZY HEIGHTS OF $3800 PER SQUARE FOOT

The cost of a square foot in some parts of the Burj Dubai has increased to Dh13,000.

Prices in the world's highest tower, which is due to open by the end of 2009, start at Dh10,000 per sq ft compared to Dh4,000 just a few months ago.

The Burj Dubai's biggest competitor in terms of price is the Palm Trump International Hotel and Tower, where the square foot rate recently topped Dh12,500.

Prices in the Burj Dubai and Trump Tower are widely considered the highest in the UAE and are expected to top any other developments in the GCC countries, said Ali Al Rahma, CEO of real estate information website Eqaraat.com.

The Palm Jumeirah has retained first place in terms of returns as the rate has risen to more than 600 per cent over the past six years.

Some villas that were sold for Dh2.6m five years ago have recently attracted offers of more than Dh13m. Meanwhile record amounts are being paid in developments such as Business Bay, the Lagoons and Culture Village areas.

Office units in Business Bay saw a big demand from traders who buy large areas and resell them at an average profit margin of up to 80 per cent. The price of office units in Business Bay range currently from Dh1,200 to more than Dh2,600 per sq ft. The price of one built-up square foot in Jumeirah Village ranges from Dh680 to Dh1,000, while the price of each built-up square foot in areas where 10-storey buildings can be constructed has gone up substantially.

Dubai Waterfront, Downtown Jebel Ali and International City are seeing increases in prices.

At 636 metres, the Burj Dubai is now the world's tallest man-made structure, having recently surpassed the 628.8m KVLY-TV mast in the United States.

Developer Emaar has not disclosed the tower's final height but it is expected to be in the range of 700m to 1,000m. Some reports say the final height will be 818m, an estimate based on architectural designs published on the internet.

The Burj Dubai is the most important part of the Dh20 billion Downtown Burj Dubai project, which includes 30,000 apartments, nine hotels, 6.2 acres of car parking, 19 residential towers, Dubai Mall and a 30-acre artificial lake.

The Trump Tower, located on The Palm Jumeirah, is regarded as the most luxurious commercial building in Dubai.

It will be the centrepiece building on the Golden Mile, located on the trunk of the Palm.

Initially the tower was shaped like an opening golden tulip, but in April 2006 its design was changed to feature a split linked tower with an open core design.

The 48-storey mixed-use building will have a 300-room five-star hotel and 360 freehold residential apartments. The amenities will include exclusive access to a private beach and yacht club with tennis courts, gym and fitness centre, pools and gardens.

The ambitious Dh2.2bn project is the first joint venture between Nakheel and the Trump Organisation, whose president and chairman is Donald Trump.


http://www.business24-7.ae/Articles/2008/6...8ff7a52b4b.aspx

I've been tying to find Land in Business Bay.. 1200 AED sqft on the GFA..
Dubai is still booming,, thousands of multinationals trying to set up offices.

I suppose the biggest factor here is the MAX Mortgage you could ever get was 80%.
Also the Lending Rate is 7.5%
Mortgage companies very strict on Valuations.
This situation is now coming back to the UK

The biggest issue is finding a project that will be built, rather than something that cant be as its too expensive to build it Now.

BTW,, Mohammed Bun Rashid Gardens,, behind Business Bay 800 MILLION SQFT DEVELOPMENT that they are building for themselves.

Every Contractor is crying out for good people and will pay Excellent Salaries..

Read it again Loggy! I wrote how they will do it in the post!!!!!

But to further my point. . . I am excited about Dubai
They're gonna have the infrastructure in place to host world sporting events, theme parks, 7star luxury to welcome guests of any background
I dont think there would have been any problems if the olympic torch had have been carried throughout the streets of Dubai!
People on this forum banging on about it being in the desert - so what? so is las vegas and look how that city has grown from a dusty desert in the space of 50 years - and people back in the 50's probably predicted doom for Vegas, that it would be nothing more than an overnight fancy for the mafia
Most cities had to start somewhere to get established, Hong Kong, Sydney, Singapore,, all relatively new cities ,
the list goes on. . .
the next exciting one happens to be Dubai, and good luck to you if you bought something there
Hold it and prospur
What is it with people from the UK anyway thinking they are single handedly supporting the Dubai property market ?
Stop watching them stupid property ladder programmes on the telly and think in world terms

Dubai is great, i love it

and now I'm off to paint my lounge in neutral colours

Roughly 30% of property sales in Dubai is attributed to actual people that want to live there, the rest are greater fools flipping and jacking up rents. Smart money has left Dubai ...invest in Abu Dhabi or better still buy gold.



Property market hit by oversupply fears
By Suzanne Fenton, Staff Reporter
Published: July 10, 2008, 23:53


Dubai: Faith in Dubai's real estate sector could be shaken if the plethora of developments coming on to the market next year outstrips demand and if the government goes back on its promise to issue residency visas.

"I think a bigger worry would be if the government withdrew its promise to grant residency visas for freehold purchasers and their families. It is clear that a significant number of buyers in the market see Dubai as a safeguard against trouble in their home countries and this safety net would be removed if that promise was not honoured," Matthew Green, research director at Cluttons, UAE, told Gulf News.

These comments come after a report was released yesterday by ratings firm Fitch, identifying oversupply and sustaining foreign demand as the major challenges threatening Dubai's real estate sector.


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


"The main challenge is oversupply. Some projects coming on to the market in 2009 and 2010 will all be coming at one time," Bashar Al Natoor, author of the report, said.

Marwan Bin Galita, chief executive of Dubai's real estate regulatory authority, Rera, said there is currently around Dh6 billion in escrow accounts in over 33 banks. Around 800 developers have now registered over 1,624 projects.

The report notes that if supply does exceed demand, prices of property will fall, reducing revenues, which would then have a negative effect on developers' credit profiles.

Recent figures from Colliers International show that the average price for residential properties in the first quarter was $434 per square foot. While high for Dubai, the prices are still below those in Manhattan ($1,289) and in London ($2,093).....however niether is Qatar Bahrain Peru.....not sure what point Colliers is trying to make here


However, on a positive note, the prospect of falling house prices would be a glimmer of light for Dubai residents.

"There is a high probability of late delivery and even project cancellation, due to logistical constraints, which could ultimately result in a better match between supply and demand," said Al Natoor.

An analyst at EFG-Hermes in Dubai, Stefan Schurmann, said although supply is catching up with demand, he doesn't see oversupply as being a major threat to the market.

"There are two things [affecting supply] and that is delays and construction constraint. A lot of projects are coming to the market this year and next. There is some risk as supply is catching up with demand starting next year.

"We know demand is strong. There are still a lot of people coming to the UAE and those people need accommodation," Schurmann said.

"I honestly don't think oversupply is a concern at this point or over the next three years," Green said.

"If you look at the actually deliveries over the past two years, you realise that only, say, 50 per cent of expected product is delivered on time. In 2007, around 30,000 units were handed over compared to a forecast of 60,000 units the year before.

"Delays are just part of the market in Dubai and it may actually help in the long-term by drip-feeding supply instead of dumping a huge glut of new units all at once," Green said.

İn terms of office space, the report says that Dubai, with its 1.4 million population, currently has approximately the same amount of office space under construction as Shanghai (population 20 million) and Moscow (population 10.4 million).

Office sector

The office sector may also "start experiencing a price correction" as massive new supply comes on to the market over the next two years, according to the report.

Dubai must continue to attract sufficient real estate demand as the emirate plays a major part in filling the $1.8 trillion worth of projects that are due to flood the GCC next year.

The top five biggest civil building projects currently under way in the GCC are all in Saudi Arabia, the UAE and Kuwait with a combined value of $349 billion.

Fitch believes that foreign demand is the "prime driver" of Dubai's property market, thanks mainly to the number of expatriates living and working here and institutional investors who have reinvented Dubai as a business hub.

Although political tensions are increasing in the region, primarily between the US and Iran, analysts do not believe this will affect the UAE's status as a stable, Middle Eastern country.

"In my opinion, the Iran situation is not going to dampen foreign demand, at least in the short-term. Historically, Iranians have been big investors in Dubai and any escalation in the region could actually fuel further demand for property," Green said.

Given that Dubai already looks overdeveloped to me (and, as you point out, its small population), that is a staggering number of pipeline projects ......

...are they, by any chance, built on sand?...

Bazil i hear you say? Talk about a gangster rogue country
It would not cost them a thought to put you on the missing list in Brazil
Go there and find out for yourself, buy some property in brazil and have a look at the kind of people you will be trusting your money with
You'll be having many a sleepless night about that

Florida? Recession recession, recession. . . . you can't give property away in florida right now
more sleepless nights

Dubai is where its @
New Technology, entertainment, 5 star living
I sleep very well

I think it is over developed, yet people are still buying. You could say it is overhyped by the media but then again rich people are buying in Dubai as well, David Beckham and half of the England football squad bought here in 2002, or was it 2004. So who knows it could be a really great place in a few years time, as long as money keeps flowing in. You can join a discussion about Dubai at -
http://www.hiday.net/forum/list.php?4

I agree, there is so many celebs are turned on to Dubai and owning stuff there now
When they finish the Manchester United Academy there next year i think you'll see the full Manchester united squad on them Etihad 1st Class flights to Dubai weekin and week out
Dubai is Super Kool

Good enough reason not to go really.

David Beckham, that Spanish crooner (Julio Inglesas or however you spell it) and a top notch golfer were, allegedly, some of the first takers of Palm properties.

There was a rumour when I lived there that they didn't actually buy them, they were more of a "gift" to encourage others.

Whether it's true or not is anybody's guess.....

Heard the same; wouldn't doubt it. Same in Morocco. Now Ian Rush (Liverpool star of yesteryear) has put his name to a development in Cyprus. My prsonal view is that a decent development sells on its' merits. If you need 'celebrity' endorsement that is a VERY good reason for steering clear. Have noticed a number of England rugby players lending their names to various promotions, and a famous boxer doing likewise. Alarm bells. They have risked nothing. Rather like TV property "expert" Sc... .....s, using his 'celebrity' status to push his own company.

Quine, i take it your not a Manchester United Fan then?
I saw Slash there a few weeks back and I take it your not a Guns and Roses fan as well

Today, Where else can you go and enjoy returns on property? I will repeat what you allready know-
For example-
All the westernised countries are finished, forget spain, bulgaria? romania? latvia? - all dead weights,
Thailand? Philippines? you need to marry a national who will eventually screw you in court, or you will buy an apartment in a complex that has dodgy title deed to begin with
Mec'ico?, Brazil? Bolivia? ect. er? -Rogues.
China- They seeth at westerners
Whats your exit strategy for a property Egypt?? Who's gonna buy it??
Put it this way, so many building companies in the U.K and U.S.A are going stagnent in stock or simply bankrupt but the Dubai market is bouyant still with safe infrastructure, no caps, its nicely set up, stock in building companies developing in Dubai is still on an uptrend, Companies are relocating their business base there, a world trade center- middle east- stock market hub, their Durham will come unpegged from the dollar soon, and most importantly Dubai itself is STILL GROWING so I'm sitting pretty with my investments thanks and leave that gloomer sat in his living room in front of the telly in Slough, to scratch your head and wonder why your feeling a little depressed today . . .

yer . . . I do buy in Dubai

Question: Who eventually is going to live in them? .....too many speculators not enough end buyers....its an accident waiting to happen, better take your money from a greater fool if you can and invest elsewhere.


http://www.gulf-daily-news.com/Story.asp?A...p;IssueID=31127

Dubai property market overheating says bank
DUBAI: A property market boom in Dubai is showing signs of overheating as speculators betting on quick gains inflate prices of real estate still under construction, Standard Chartered said yesterday.

Dubai should take measures to swiftly weed out short-term investors, such as introducing a capital gains tax on properties sold within a year of purchase, or risk a correction, Standard Chartered said.

"The markets will correct themselves. It is best to try to take the heat out of before it disciplines itself," said Standard Chartered regional head of research Marios Marathefis.

"There are signs of excessive short-term speculative activity which is based on leverage. This kind of mentality is destabilising and it is dangerous and inevitably it leads to a correction."

Palm island builder Nakheel said last month prices of some units have almost tripled in two years, and Colliers International estimated property prices in Dubai rose 42 per cent in the first three months of this year alone.

Home to man-made palm-shaped islands and a ski slope in the desert, Dubai kicked off a regional property boom in 2002 when it first invited foreigners to invest in properties.

Since then, regional economic growth supported by a more than six-fold rise in oil prices has attracted streams of investors into real estate in the business and trade hub whose population is growing more than 7pc a year.

In well-regulated property markets, completed properties should trade at a premium to unfinished properties because they pose less risk and the owner can derive rental income from them.

In Dubai there is "no evidence" that finished properties trade at a premium to off-plan properties - units that are still under construction, Standard Chartered said.

Since developers allow investors to pay about 10pc of the cost of an unfinished property upfront, a speculator with no intention of living in the unit can buy the property and resell it shortly afterward for a substantial gain.

"It is very common to see investors taking positions in the market with the intention to flip it before further payments are due," Standard Chartered said.

The dirham's peg to the weak dollar, which has forced the UAE to keep interest rates low despite high inflation, "has encouraged risk-taking behaviour", Maratheftis said.

The state should step in with a 50pc capital gains tax to deter speculators, while requiring developers to ask for higher initial payments and proof of a buyer's ability to pay the full sum, he said.

[quote name='dubaiexpat' date='Jul 28 2008, 01:56 PM' post='1234421']
"Question: Who eventually is going to live in them? .....too many speculators not enough end buyers....its an accident waiting to happen, better take your money from a greater fool if you can and invest elsewhere. "

Ex -PAt, There is no accident at all -
People in Dubai are not worried about any of things you have mentioned because:

Short Term-
with rising inflation all over the world, a depressed stock market, the trend as always is to sink your money into property and ride out the storm on the fly,
but with the sub prime in a poor state and most european countries following suit, there are not many property places left to invest in,
except UAE Dubai which is a big attraction due to the no capital gains tax, the sopistication of the city and the technology embraced.

Long term-
" Who eventually is going to live in them?"
Many businesses are locating/have located, a trading hub there, Virgin, Sony, IBM, Haliburton, Deutsche Bank, Citigroup, ITP, of course many Oil companies. and I am sure many other companys will follow

Geographicly it is perfectly located position between europe, hong kong/china/Tokyo/Singapore/Australia/USA/South Africa, within 6 hours flying time you can be anywhere, which is also beneficial for international time zone trading differences. It has its World trade center, middle east stock market hub. With the advanced technology in Dubai, busineses can run efficiently and progressively with whats going on internationally. For entertainment it will have its own Disney World style theme park, Stadiums to host world sporting events and when the new airport is finished there will be an increased influx of trade coming in to Dubai

I safely say that the multi million/billion dollar corporations developing dubai are not doing it on a whim, taking a pot luck chance, its a long term plan to establish a great city that is needed in the middle east

A very exciting place to be

It is just stinking hot.

and that is why they have an invention called air conditioning

Hi everyone
I am new to this forum but I read your thread and thought i would get involved

I bought 7 units in Sports City last year and already i'm seeing returns
I sold 4 of them off recently, made a profit which has nearly paid for the other 3 in the space of a year
I am going to hold on to these 3 now as they don't stand me much money and it would be silly to stop
I wouldn't mind living there at all

Correct and correct!

I'm not a Dubai fan either having lived and worked there I know the ropes. I lived on one side of Sheikh Zayed Rd and worked on the opposite side. Both stunning looking buildings outside but dreadful inside. Our very expensive rental apartment had what I'd call a £2k B & Q kitchen in it. Same with bathrooms. Cheap, cheap, cheap. The standard of workmanship there is so poor - even worse than the UK! It's such a huge bubble waiting to pop.

I am sorry your apartment had a lower quality kitchen fitted
Maybe it was built by one of the less reputable developers in Dubai
I bought loads of off-plan apartments in the UK in the past and they always had a plane kitchen with a couple of stainless steel appliances thrown in
I think thats the norm in any country now onless your talking about prestigious top end stuff
I am sure you would have seen the kitchen and bathroom before you signed the agreement to rent it out?

Thursday, July 31 2008

Retail Banking

NEWS ANALYSIS: Real estate bubble trouble?

By: Mike Gallagher Print this article


There has been a lot of talk lately about a Middle Eastern real estate bubble. Is all the talk just a lot of hot air, or is there more to it that that?

Is the idea of a real estate bubble transparently obvious?

Warnings about real estate bubbles rarely seem to be out of the news as economists fret about consumers spending more than they are saving and governments grapple with inflation. However, most market watchers admit that they are now looking at a new type of economic phenomenon as the developed Western markets slow down and emerging markets hot up. Add a plunging dollar, soaring inflation, high commodities prices and a real estate boom on side of the world and a virtual economic collapse and investors are finding themselves in unfamiliar economic grounds.


Fierce competition amongst banks and mortgage lenders in the US, Spain, Ireland and other parts of Europe led to consumers being offered mortgages under the most ridiculous circumstances. Some mortgage applicants could not even afford to put down a cash payment, yet were still offered huge loans that were well beyond their abilities ever to pay back.


Han de Jong, the chief economist for ABN Amro was scathing about the role of economists in banks, especially during the mayhem that led to the subprime crisis. Writing in the Financial Times in February he said, “I find it sad to conclude that the role of serious economists in financial institutions is very limited today. We are little more than clowns, whose purpose in life is to entertain clients. Most important decisions in financial institutions are taken by lawyers, MBAs and the like who have little interest, let alone understanding, of the importance of the macroeconomic dynamics of the current situation.”


Middle Eastern investors, including banks, which had been stung by the collapse in the equities markets in 2006, and the subprime mess afterwards, have piled into real estate in ever greater numbers and have been followed by increasingly large amounts of international investors, some of whom may be trying to make a quick return by speculating on the market. That has led several market analysts to claim that a real estate bubble could be developing.


Robert McKinnon, the managing director of Al Mal Capital recently warned that “a steep rise in construction material prices....are jeopardising many projects. In the future, this will lead to an asset price bubble, followed by a bust."

In June, Al Mal said they were somewhat concerned about the speculative nature implied by the divide in valuations of property direct from the developer and the secondary market. “Although the recent trend has been to drive up secondary prices to eventually match recent launches, we feel the phenomenon implies a growing speculative environment,” claimed McKinnon.


Middle Eastern investors have seen real estate as a solid type investment, something they can see and hold and the poor performance of the MENA stock markets over the past year may be down to local investors reinvesting in bricks and mortar and western investors taking profits and putting them into Middle Eastern real estate instead of back into the equities markets.


A Moody’s report in June said that the rapid expansion of private sector credit, particularly consumer credit, was fueling inflation in some countries. It said gulf oil exporters were experiencing the strongest rises in credit as banks, flush with liquidity, competed to expand their loan books.


Moody’s said that some central banks in the region were gradually tightening restrictions on bank lending to consumers. However, it said, “These efforts have not been stringent to date and credit continues to surge in many places. It is difficult to calculate the exact proportion of private credit growth that is being channelled into real estate and equities, although it is likely to be sizeable. Nascent mortgage markets are expanding rapidly in some countries. In Dubai, for example, some lenders are offering loan-to-value ratios as high as 97 per cent. This raises concerns that a potential sharp correction in property prices in some Gulf states could hit banks’ asset quality and raise governments’ contingent liabilities.


Tristan Cooper, vice president and senior analyst for Moody’s sovereign wealth unit warned that the real estate sector Qatar in could also be at risk of a correction. “Whilst much of the country's corporate debt is being used for highly profitable hydrocarbon export projects, Moody's has some concerns with regard to Qatar's banks: given their aggressive loan growth, banks' asset quality could suffer, particularly in the event of a sharp correction in real estate prices, which have soared in recent years.”


In Lebanon, the Riad Salameh, the governor of the Lebanese Central Bank is so worried about the potential of a housing bubble developing that he has been hinting that they may insist that new borrowers put down at least 40 per cent of the equity up front and said in a circular issued by the bank that that Lebanese banks should only offer capital to projects which do not amount to more than 60 per cent of its total cost.


In Iran, property prices in some areas have risen by more than 100 per cent in a year. Some properties in Iran are now worth well in excess of $1 million for an average-sized apartment in a reasonably affluent suburb of Tehran. This has contributed to soaring inflation rates of as much as 26 per cent that has prompted the Central Bank to consider revaluing the Iranian rial against the dollar.


Fadi Al Said, head of equities for ING Investment Management Middle East in Dubai spoke to CPI Financial and said, “On real estate prices and the bubble issue, I have done some regression analysis by regressing price per square foot to GDP per capita and found that for real estate prices in UAE, the movement will be upward and it will be an aggressive move, as it shows that based on my regression model analysis, prices should be much higher than current levels, especially if you compare prices in similar financial hubs like Hong Kong and Singapore, where prices are more than double the prices in Dubai even after the sharp increases we saw in the past two years. It is because the prices were moving so fast and with very strong momentum that people had this bubble feeling.”


He claimed that another important reason was supply control, and he said that, “land supply is controlled by the government, directly or through master developers, [so] they can choose to delay some projects or even phases of these projects to sustain prices, meaning that demand supply dynamics are not as free as most people think.”


Construction costs have escalated substantially to the point where the current cost in prime locations in Dubai, with land included, may reach more than AED 1250 (approx $340) per square foot.


“I think the main issue in the real estate sector is the segmentation of projects, as it is tilted more towards the high end, and this is in my opinion the major challenge, unless it was planned and meant to be for Dubai to be a city for the rich only,” he added.

Heh, I find peoples' attitude to Dubai interesting, and a good indication of their character. It is a hollow place. We have quite a large operation there, and most of our people hate it with a passion

I found it the most soul-less place imaginable. No nature, no greenery, too hot to walk anywhere (and no-where to walk). It was also extremely difficult working in a country where the work ethics are so different from anything I was used to. I also found the "slave trade" thing very difficult to deal with...Indian, Filipinos etc being paid (when they were lucky) a pittance to slog all day in the heat building "luxury" apartments.

. .it is a hollow place. . . You could say that about any city in the world .
And what country has never exploited cheap labour?
America and UK do it all the time and probably wrote the book on it
Look at UK, in recent years it has been the Polish coming in and building everything, before that it was the irish,
and I agree Dubai is hot, but try living in texas or california, or australia, but people do it
My brother recently moved to Singapore and he's struggling with the heat and humidity there
at first it would be hard untill you climatise but as always people do it, same for Dubai
and another thing, people claim there is so much being built, then they say "and its just a desert"
surely as it developes the desert disappears and it becomes a city?
Its like saying "London is just a river with some grass around it, and it pisses down all the time"
I don't know why people try and pick out every fault they can find with Dubai, its strange

and what "Slave Trade" ?
its called providing jobs for people that need the work

50- cool 50 - it i obvious you will cede no ground in this Dubai debate...for you everything is absolutely cushty...well lovely for you....BUT you must surely see the conditions that those construction workers have to live & work in...cheap labour? Please - open your eyes - look around you - you wont have to go far to see how these people live - ramshackle accommodation (if lucky) no clean water, long working hours...for a pittance....yes they need a job - they are desperate..but in a state that has SO much wealth the way they treat their migrant workers .in this day & age it's a damned disgrace & more like slave labour!
What IS it with you guys & Dubai???? Do you all go blind on arrival? Or do you just shunt from 5 star hotel to 7 star hotel in a cloud of perfumed luxury??

As for the climate - well it aint pleasant - yes you do become acclimatised after a while but summer is still damned hot (must be something to with it being...desert!) And that;s the only decent bit about Dubai really - at least whilst they are all building there they are not despoiling other areas of considerably more outstanding beauty.

As for Dubai lacking soul - well anywhere with a huge expat population is always going to feel transient ..obviously some people like it.....but just how much more CAN like the damned place? (I hear smart money moved to RAK a year ago).
So you keep building the Chrystal City on the edge of the desert and keep ignoring the impact on the infrastructure & keep on believing that this isn;t a bubble waiting to burst & that somehow mysteriously you will be impervious to the global credit crunch (the clue is in the name!). People don't TRY to find fault with Dubai..it is what it is...ugly (on SO many levels) and manic. But hey..if that's what rocks your boat....

Esmerelder
Ehm. What words come to mind when i read your post. . .ehm.. let me think . . er . . hippocrit and bandwagon would be the first ones.. .
I think the words "Slave Trade" are a little strong when talking about the work force in Dubai.
You really are painting a white canvas with a black brush there aren't you?
Its not like there is a circus master cracking a whip and trading minorities for brown sugar
I have seen the accomodation they live in first hand thankyou very much, I've sat down and broke bread and ate with some of these workers so don't try and hang that 5-7 star stereo type over my head. The ones I have talked with are not stupid. They Know they are underpaid but it is better than the fat nothing they have back home. They do have freedom of choice you know. I have also been to pakistan and the philippines for the matter and I've seen the conditions the people live in on home soil. And it is poverty stricken. And if there were no jobs for these people, you Esmerelder would be the first to get in line with your 2 pence worth and say we need to provide jobs for these people, whilst taking a sip of your fair trade coffee and listening to your new coldplay album. If your so concerned about them why don't you open up your home for them and let them come and live with you? and get them a nice cosy job in your community? we all know the answer to that.

Did i say Dubai was, how did you put it? "Impervious" to the credit crunch, No I did not, i have in this forum commented on the facts which make Dubai a young growing exciting city with a bright future. Inflation is affecting every country of course, but some more than others.
As for a bubble, negative thinkers like to come into this forum and tell self fullfilling prophecies.
They were talking of the bubble in Dubai last year and the year before that, and the year before that, the smart money left a year ago ect..la lar lar.. hoping for a " I told you so", meanwhile people like me have made progress.

You comment on the infrastructure. The infrastructure, services and transport systems are being upgraded along with the building work that is going on
And you say Dubai is "Ugly" and lacks soul...... and there is nothing ugly about London or New York or any other western city? where someone would knife you in the street if you look at them the wrong way? where there is serious drug problems and old age pensioners die in winter because they cant afford to turn the heating on
You really need to check your intelligence sources before you come on the forum talking nonesense Esmerelder

Gulfnews....trying to be negative quite a suprise really although they managed to find an anonymous source from a real estate company to contradict the report. I have lived in a small 3 bedroomed villa for 6 years in the Lakes. They were built for 300,000 Dhs each (the land was given free to the Emaar the developer) they are selling now for 3,500,000 Dhs....utter madness if you ask me. Once speculators which make up to 70% of this market see things tanking it will be a free for all....a bit like the stock market a few years ago.


Morgan Stanley expects property prices in Dubai to start coming under pressure as oversupply becomes evident in 2009, but prices are expected to rise in Abu Dhabi's undersupplied market.


Dubai property prices to fall 10%
By Suzanne Fenton, Staff Reporter
Published: August 05, 2008, 23:23


Dubai: Property prices in Dubai are likely to fall 10 per cent by 2010 as supply outpaces demand, but they are expected to rise in Abu Dhabi's undersupplied market, Morgan Stanley said in its latest report on Tuesday.

"For 2009, we expect prices to start coming under pressure as oversupply becomes evident [in Dubai]. We forecast a 10 per cent decline between 2008 and 2010 in our base case," said the report.

A sharp correction in Dubai's real estate sector could have a ripple effect on neighbouring countries in the Middle East, with shares of 12 regional property firms dropping an average of 35 per cent, said Morgan Stanley in a report.

"While we expect these price declines to be limited to Dubai, given the level of undersupply in surrounding markets, we cannot rule out a 'contagion' effect on the Middle East, North Africa property shares prices, as investor confidence suffers," said Morgan Stanley.

Morgan Stanley analyst Mai Attia says growth in the Menas property market will be driven mainly by Abu Dhabi and Qatar due to the undersupply of housing.

At the other extreme, oversupply is expected to hit Dubai in 2009, leading to a period of price declines, Morgan Stanley said.

However, an analyst at a leading real estate services firm, disagreed. (what a suprise!)

"No, I don't think so. You have to take into account the population growth coming. Over 40,000 units are required each year to keep up with this, in addition to the pent-up demand from those people living in Sharjah and Ajman.

"If anything, all those people living in other emirates will start coming back into Dubai.

"They [prices] are going to go higher," the analyst said, requesting anonymity.

While property prices in Dubai are predicted to drop 10 per cent by 2010, it is in Ajman that some believe will see the greatest price corrections, due to the Dh1.4 billion of infrastructure currently under construction.

The knock-on effect could be house prices going through the roof.

Less than two weeks ago, Standard Chartered had targeted "excessive" speculation as the main cause behind the rising prices. They suggested a possible remedy would be the introduction of a 50 per cent capital gains tax on properties bought and sold within 12 months.

Standard Chartered showed a premium of Dh1,950 per square feet for villas and for apartments, the price increases around Dh70 per square feet the higher the floor.

Property prices have continued increasing to the disbelief of many investors. Colliers International recently reported that prices in Dubai rocketed 42 per cent in the space of three months, between the last quarter of 2007 and the first quarter of 2008.

An overall increase of 78 per cent was recorded in a single year, between first quarter of 2007 and first quarter of 2008.

Billy Rautenbach, director of operations at Better Homes, predicts property prices in Dubai will balance out over the next couple of years. (I wonder when the dude will use the word correction).

"Certain properties will continue to increase in value and certain properties will decrease in value. The market is stabilising but we still see some areas growing month on month especially in the villa market," Rautenbach said.

Matthew Green, research manager at Cluttons UAE, says prices will not slump. Dubai's seemingly unshakeable popularity among expatriates is winning the battle over inflation fears.

------

Note: All vested interests such as Cluttons, Better Homes and every speculator in Dubai do not want to see an end to the party, but I think that those in charge may want to take the steam out of things for the health of the economy. Most people actually working and living in Dubai are suffering from inflation in rent, education, goods and services, especially the overworked and underpaid lads in blue. Infact the working and middle class are being priced out. IT IS MAKING DUBAI VERY UNATTRACTIVE FOR LIVING AND DOING BUSINESS!!!!!! I work for the Federal Government and I cannot hire the people that I wish to anymore and my department is losing long serving staff deciding to go back their home country. Singapore has citizenship where Dubai hasn't .....this fundamental difference means that people will not view Dubai as a long term investment, but a short term speculation opportunity, ultimately this will play out in the real estate market once projects complete.

As I thought- any challenge to your opinion and you launch a personal attack....and on someone you know NOTHING ABOUT!!!
I started off to write a rebuttal of everything you have said - i(ncluding those rather offensive reference of hypocrisy & racism....then I thought - you know what.... for this guy...I really can't be arsed...because nothing I or anyone else says will ever change his mind...so what...no skin of my nose is it...I will only say I am not a neghead as a perusal of other threads (Morocco & Turkey)will show & that I lived overseas for 15 years (in Dubai & several 3rd world countries).
Oh yeh - & I hate Coldplay & coffee

Well said. Who wants to live in UAE. It is 45 degrees there is no scenery or countryside only desert the locals are rude and painful and the place is socially restrictive. The entire gulf is a completed joke if considered as a desirable place to live. The whole economy is driven by construction feeding construction, the sensible expats are only here to make money and get out. Yes there are the expat clowns who think they are grand spending their money on big cars and bling but they will be crying later.

Oman does have a bit more going for it in terms of scenery and peoples but then again so do all the med conutires and they are not so unbearably hot.

That is sooo 2000 years ago, where do you get your thongs and crosses.

Well thats what muslims eat- bread, and they do make a special occasion of sitting down and eating and praying hence my use of the term "sat down and broke bread".
Which i did, and each time it was a respectfull, pleasant meal.
Muslims don't use crosses by the way
And how can you say the locals are rude? I find the locals to be lovely people, really down to earth, I don't like some of the muslims I have met living in the U.K but in the middle east I never met a rude local once. I'm sure everyone is going to jump on this comment now right?
anyway back to the origional point. . .
Esmerelder - your origional post was hardly a challenge to my opinion,
you launched a personal attack on me being ignorant of the work force in Dubai , and to quote -

""""What IS it with you guys & Dubai???? Do you all go blind on arrival? Or do you just shunt from 5 star hotel to 7 star hotel in a cloud of perfumed luxury?? . . . .for you everything is absolutely cushty...well lovely for you....BUT you must surely see the conditions that those construction workers have to live & work in...cheap labour? Please - open your eyes - look around you - you wont have to go far to see how these people live - ramshackle accommodation """"

I do believe you began the personal stereotyping/racism attack so i gave my response in which i stereotyped you.
If you can do it so can I. Its an easy form of ignorance.
Next -
"""nothing I or anyone else says will ever change his mind""""
I do change my mind- based on facts esmerelder, not on the strength of someone who "cant be arsed" coming into this interesting discussion forum and giving a half baked opinion.
And in your second post- If you don't want to " waste your time" as you put it, thats fine, that suits me because I don't believe you know what talking about anyway, in which case you would be wasting everyones time, as well as your own

I do believe you began the personal stereotyping/racism attack so i gave my response in which i stereotyped you.
If you can do it so can I. Its an easy form of ignorance.
Next -
"""nothing I or anyone else says will ever change his mind""""
I do change my mind- based on facts esmerelder, not on the strength of someone who "cant be arsed" coming into this interesting discussion forum and giving a half baked opinion.
And in your second post- If you don't want to " waste your time" as you put it, thats fine, that suits me because I don't believe you know what talking about anyway, in which case you would be wasting everyones time, as well as your own
[/quote]

Well you have been dipped in vitriol haven't you? I challenge you to look at working conditions in Dubai & you respond by with vehement accusations of racism & hypocrisy - hardly in the same ballpark is it?
As long term posters on other threads will know, I always try to give a considered opinion, based on my own personal observations and experience. I don't ramp and I try not to disparage....and although you have made many postings since this Feb on this thread....it isn't your personal property.... I have a perfect right to state my opinion on this thread or any other on this forum.
I do not consider the opinion I gave to be "half baked" (as you so charmingly put it). I first lived in Dubai 1n 1977 and have had many business trips of varying duration since that time. In the last 5 years in particular, I have spoken to many developers and investors in situ so to speak..... so I do not consider myself to be particularly ill-informed.