Du-Bye To The Gulf Property Boom?
This cannot have been the most restful of Eids for Gulf traders. As the US Congress rejected the bail-out plan at the beginning of last week, interbank rates shot up, oil prices plummeted and stock markets dived worldwide, Middle Eastern stock holders could do little but watch in agonising inertia, as markets remained closed for the holiday. Hence today was not the most restful of days in the markets: Saudi Arabia plunged 10%, Oman dropped 7%, Abu Dhabi was down 6% and Qatar was down 5%. The Dubai Financial Market, down nearly 8% today, looks horrible.
So not a great day to be a Gulf investor. Still, at least they have their homes, right? Who needs a dazzling stock portfolio when you’re celebrating Eid on the 25th floor of a new-build luxury waterfront apartment block, overlooking the marina, with swimming pool, gym, on-site golf course and concierge, in one of the world’s fastest growing financial centres? Dubai’s Real Estate Regulatory Authority (Rera) is optimistic enough: ‘There will be a correction in some places but a correction in profit only. Rather than making 20% profit, maybe investors will make 5% profit. What have they lost?’ said CEO Marwan Bin Galita. According to Standard Chartered, ‘doubling your money in a couple of years is perhaps not going to be as easy’. Nightmare.
Actually, I’m not sure why I put a question mark in the title… I don’t think it’s going to be a matter of not being able to double your money in a couple of years. I think there’s a very real chance that, at least in Dubai, property prices could actually fall quite hard and quite fast. Even if there wasn’t a liquidity crunch, even if the rest of the world wasn’t coming out of a property price bubble, even if fast-dropping oil prices weren’t casting doubt on governments’ ability to sustain their mega-spending sprees, I still wouldn’t be buying.
Yes Dubai’s population is growing quickly. Yes, it is the only place where the banks are still hiring. Yes, it is tax free, yes the weather is nice and, yes, the shopping is pretty good too. But the planners do not seem to have allowed for the fact that the drivers of population growth (mainly South Asian labourers brought over to work on the… er… construction sector), may not be in the market for a luxury penthouse. What with Dubai not having a minimum wage and all.
On the positive side, though, at least this isn’t true. The guy was misquoted. Prices didn’t fall by 16% in Q2. The rate of growth slowed from 43% to 16%. That’s the kind of news that could have had Gulf investors choking on their iftar meals. What a day to make that kind of slip-up. Wait a minute, though. Price growth dropped from 43% to 16%? I don’t think that story would have inspired many sighs of relief if the earlier story hadn’t come first.
October 7th, 2008 at 9:40 am UTC
The market in Dubai was going to correct/collapse with or without the global financial turmoil because there was no reallity in either the stock markets nor in the real estate sector. In the real estate sector the boom has been driven by speculators, cleaning services and tax residency seekers - not by any real demand. Where are these luxury apartments, condos and villas going to find 3 million white collar investment banking types?? The speculators are now on the run (many over-leveraged), the cleaning services are now worried about the move to transparency (we will see) and the residency seekers have been informed that they will never get residency when buying property in UAE (read the small print when developers offer it).
However, how the collapse will be hidden and glossed over has still to be seen. It should not and should be embraced since all emerging economies eventually go through this phase which is necessary to bring back reality and allow real development. Capital will now go in to more productive areas of the economy and hopefully focus on knowledge based industries to ensure the long-term growth of Dubai.
October 14th, 2008 at 11:45 am UTC
Although everyone is quite positive about the Property market in the UAE including Dubai, I feel that there would be excess supply in the coming years plus lack of liquidity and presence of a majority of short term investors would have a corrective impact on Dubai Property prices. However, I am quite confident about the Abu Dhabi market, which started late and has a lot of potential (if planned developments are carried out in time and with Quality).