Have The Wheels Truly Fallen Off the Property Bandwagon...

Latest Reports out of Dubai .....

Plenty of rumour and speculation about the state of the Dubai Property market as numerous developments are abandoned and investors are squeezed for payments as Banks withdraw developers funding. At the beginning of February 09, it´s estimated about $250 billion worth of projects have been cancelled or shelved, compare this with the UK Bank bailouts ($60billion) and it gives an idea of scale.

More concerns have been aired over the legal process and protection for investors as the recently installed Dubai Real Estate laws have not yet been tested. Worst still for the Banks, who are only now experiencing ´default´ and ´foreclosure´, in Dubai, debtors have their passports confiscated and go to prison, and how are they going to chase bad debtors across international borders, should they manage to escape?

So with the global credit situation looking to continue beyond 2009, much remains to be seen, but it´s unlikely real estate values will be maintained....

For an Dark View of the current situation read Johann Hari´s article in the Independent. HERE

International Real Estate Company Colliers International, are suggesting prices in some areas of Dubai have fallen 42% this year, whilst others have held their value. However, recent Quarterly numbers form Colliers show wild rises and falls, so we have to keep these numbers in perspective. January numbers saw an 8% fall in the final quarter of 08.

However, another survey suggests Dubai heads a list of investment hotspots for 2009! Beating out Egypt and Tunisia. Although do keep in mind the suggestion is made on the interpretation of website traffic across the companies own websites. Which is a bit like saying ´More people walked past the shop window, therefore business must be good!´..... not to mention they sell Real Estate in these areas!!

February 09 - Dubai´s largest developer Nakeel, have postoned more projects in the Emirate, including the ´Worlds of Discovery´ Theme Park and  the third Palm,  to go along with numreeous other projects shelved late last year. In other news, Regulators have ordered Developers and management companies to hold Maintenance Fees after a flood of complaints of skyrocketing Management fees .

January 09 - Property Development company Deyaar Development, claim to have doubled profit in 09 to over $300mil. However, reports are coming out of other property developers going to the wall. The Company of Al Barakah, which has 6 projects scheduled has gone insolvent, with authorities seeking CEO in connection with potential fraud.

December 08 - Dubais´ largest Property developer Nakeel annouced 500 jobs are to go as some projects are scaled back. This follows similar moves by other Dubai Real Estate companies.

Word coming out of Dubai suggests Nakeels´ Sales Dept have not agreed any new sales in ´months´....

November 08 - Reports coming from HSBC suggest Property Value Fell 4% last month in Dubai and 5% in Abu Dhabi. They even suggest prices of Villas fell 19% in the month!!!!

Off-Plan property, particularly at the ends of the market, have been worse hit. With speculators now moving to offload ´investments´ at a short loss, rather than a bigger one as projects are delivered.

With Morgan Stanley predicting a 10% fall next year, it appears our warning over Dubai´s over-heated, over-inflated property values were not too far wrong......

From Last Year....

The announcement of a seven% cap on rental increases in Dubai during 2007, and a ban on any rise at all on new rentals taken in 2006, was greeted enthusiastically by tenants. However, it is not such good news for landlords, investors and developers who will have to work harder to make their business plans stand up.

The Dubai property market is now generally judged to be in a transitional phase from a situation of under supply to the over supply of new units.

Part of the logic behind the rent cap, aside from preventing an exodus of residents from Dubai, is that new construction is about to deliver a mass of new accommodation starting this year and accelerating massively in 2008 and 2009.

That high rentals have begun to impact on the number of people moving to Dubai is seen in population data. A record of around 250,000 people moved into the city in 2005 while in 2006 the number was probably closer to 130,000; Road Transport Authority data points to 70,000 new car registrations in the first 11 months of 2006, and there are some 1.7 people per car.

Warning - Clearly the Dubai authorities do not want to see a further deceleration in new demand for property at a time of exponentially rising supply. EFG Hermes latest report pointed to 69,000 scheduled completions for this year and 139,000 next, while admitting that project delays would hit both totals.

However, with market forces of supply and demand beginning to start to move strongly against rent increases, holding rent rises at seven per cent this year makes a great deal of sense, and should inject a note of realism into the market.

If nothing else investors who see ever rising rentals and the continuation of the high rental yields of Dubai should sit up and think about the future.

For property analysts across the board are predicting falling rentals from the end of 2007 as this massive supply of property arrives on the market. Anybody who is building or investing in property on the expectation of immediate strong rental returns should think again and recalculate their business plan.

It is also clearly true that falling rental returns will not be compatible with rising property values. EFG Hermes´ study has prices falling by 25 to 30 per cent by 2010 but notes this could be out by a wide range of possibilities.

This is not to say that there will not be more money to be made out of the Dubai property boom in the future. In many property cycles it is the people who buy real estate off developers in trouble that make the highest profits of all.

But the Dubai property market today has none of the signs associated with a distressed market, and it could be that excess liquidity and supply delays keep the boom going for longer than expected. Nevertheless, the rent cap for 2007 is a reminder that good times do not last forever for landlords, investors and developers.

Courtsey of ameinfo.com