Is Dubai a Better Play on Real Estate Recovery Than the U.K. or U.S.?

Dubai property prices have slumped this autumn and villas that sold for AED13m in the spring have dropped by almost half of that. Luxury apartments are difficult to shift at any price while even affordable units are not easy to sell. Off-plan is as dead as a dodo.

Yet despite the sudden slump in the UAE housing market this autumn, with sales and selling prices sharply down, there is a much better argument to be made for buying at depressed prices here than in the UK or even the USA.

To start with the real estate price falls may already be fully priced into the market in the UAE, while prices are still heading down in the UK. It is a feature of emerging markets that price downturns are swift.

Slower falls

More mature markets seem to fall in slow motion as buyers are more reluctant to cut prices, and banks seem to have more patience with mortgage payers in trouble. Certainly negotiated prices for UAE distressed sales looking an interesting opportunity for cash rich buyers.

One London based property adviser, Mohammed Kashani-Akhavan took a full-page advertisement in Gulf News today to make this point.

He argues that the cancellation of many projects in Dubai will reduce the upcoming supply of property and ensure ‘significant growth in the value of Dubai properties in the future’, and that the rate of return on rental properties makes ‘Dubai one of the best cities in the world for long-term property investment’.

Mr. Kashani-Akhavan points to Dubai’s ‘capable and committed leadership that has managed to turn Dubai into one of the most important cities in the world’ and said that should give investors ‘every confidence in Dubai’s future prosperity’.

He says he has 27 years of experience as a UK property investor and sees the present time as a ‘great time to invest in Dubai property’ because the golden rule of successful property investment is to ‘buy low when everyone else is selling’.

Dubai not London

How interesting that this man who says he has managed to ‘profit well from property investment over the years’ now appears to be picking Dubai over London as an opportunity in the global financial crisis. He could well be right and the rebound potential for the property market is better in Dubai.

But how swift will a recovery be? And is there further downside in local property prices to come? This is a tough moment to make such a call. Oil prices could fall further in 2009 and the UAE economy lags oil price falls by six months or so. Could a fall in the US dollar attract back the UK and European buyers who have fled since the summer? Perhaps but they have their own problems these days.

However, on the whole this gentleman has a good point: where will the global economy show recovery first? The UAE has to be a good choice and price weakness in local property should indeed prove to have been the time when everybody wishes they had been brave.

Comments

[louaysa:]

This was one time bubble in Dubai and will never be back, Dubai's most income are related to tourist industry, while Jabal Ali, DIC/DMC are on the fall, new staff like Medical city and Silicon oasis turn to big failure, and no clear future for DFC, London on the other hand have mature economy, not fuel by real estate, the only problem is it have mature debt with it, and so do Dubai, but no economy, only fake one, and no transparency, Shaikh might rule that you can't put a sign for sale to keep prices up and some other funny thing, so once the party is over, and it is, it will never go back to Dubai, The only true point I see in your article, is the rent/price ratio are very high in Dubai, and that part of the tourist hub, but this set to fall as well, since many vacancies will push the rent price down, and eventually the ratio down, I would say Dubai did not get the hit yet!

2008 Dec 17 03:05 PM

[raytayzmd:]

....you have to understand that old Peter has a wad invested in Dubai real estate and gold -- hence the myriad of posts pumping the same.


On Dec 17 03:05 PM User 321547 wrote:

> This was one time bubble in Dubai and will never be back, Dubai's
> most income are related to tourist industry, while Jabal Ali, DIC/DMC
> are on the fall, new staff like Medical city and Silicon oasis turn
> to big failure, and no clear future for DFC, London on the other
> hand have mature economy, not fuel by real estate, the only problem
> is it have mature debt with it, and so do Dubai, but no economy,
> only fake one, and no transparency, Shaikh might rule that you can't
> put a sign for sale to keep prices up and some other funny thing,
> so once the party is over, and it is, it will never go back to Dubai,
> The only true point I see in your article, is the rent/price ratio
> are very high in Dubai, and that part of the tourist hub, but this
> set to fall as well, since many vacancies will push the rent price
> down, and eventually the ratio down, I would say Dubai did not get
> the hit yet!

2008 Dec 19 11:35 AM

[soulman:]

We havent even seen the tip of the iceberg yet.

There are no buyers, even cash buyers, as there is no cash in the system left....and there is no debt in the system either, ie no mortgages available.

The reason why there are so many properties for sale is that all these owners need cash...to pay for losses on other investments such as stocks etc.

The demand supply theory that has been floating around for years is irrelevant. This is a liquidity issue, that has nothing to do with supply of new propertues or demand.

In addition, the discounted prices are really not that attractive, given that the sellers purchased these properties at 1/3 of the value only 2 years ago and the discounted prices that they are trying to sell at are say 20% lower than the peak.

Give it a year or so, and all these properties will be available for 50% less than the so called " discounted prices".

2008 Dec 20 06:02 AM

[Mark Knowles:]

Sorry - No where near bottom yet. There is bravery and stupidity. Despite Citi dumping money into Dubai, this is a vain attempt to stave off the inevitable and increase the value of their "assets" in Dubai.

Look for another massive drop in prices in Dubai. The market is completely out of whack. No affordable property for local demand, no local demand in fact.

When the rest of the world recovers, they will be back to play. Before that - no chance.

2008 Dec 20 05:50 PM

[daniel.ocal...:]

Is anyone here considering the fact that rental prices in Dubai are sky high and only increasing as the number of expats continues to pour in.
The buy to let market couldnt be better, I'd imagine this will spur demand for purchases as well?

2008 Dec 20 08:05 PM

[granger:]

What is the best way for a normal individual investor to gain exposure cheaply.

2008 Dec 21 03:03 AM

[Brent Day:]

Whether or not there is still a net inflow of expats (of the sort that will have the means to play the Dubai property market) is very debatable. Lots of highly-paid white collar job loss has been reported in local rags. Much more than that in reality based on anecdotal eveidence. And there will be more to come. Much more as the real estate and construction industries continue to fall in 2009. I believe that ultimately rental demand should fall due to declining population and so should the rents demanded if this behaves anything like a normal market.


On Dec 20 08:05 PM daniel.ocallaghan wrote:

> Is anyone here considering the fact that rental prices in Dubai are
> sky high and only increasing as the number of expats continues to
> pour in.
> The buy to let market couldnt be better, I'd imagine this will spur
> demand for purchases as well?

2008 Dec 21 08:49 AM

[soulman:]

difficult, as there are no listed property trusts etc available on the market. You can buy cheap apartments, but then again in volatile markets, cheap only gets cheaper so I wouldnt advise that


On Dec 21 03:03 AM granger wrote:

> What is the best way for a normal individual investor to gain exposure
> cheaply.

2008 Dec 22 07:30 AM

[driftwood2:]

Dubai is toast for a good 10 years. RE falling by half is not nearly enough to reach the bottom in a ridiculous place like dubai. I might be interested in dubai after their prices reach the same level as other tourism towns like Rio. The entire economy of Dubai is based upon nothing except tourism and high oil prices. Since the economy of the Mideast consists of nothing except oil and the price of oil is low, Dubai has lost its greatest impetus. Seriously, the only thing driving Dubai was financial leverage invested in one ridiculous scheme after another. With all the banks having imploded, that driving force is gone now.

2008 Dec 23 12:07 PM

[De Graaf:]

If you look at Dubai from perspective, then things are reasonably clear in my view;

Dubai is a petro-state, with a huge leverage financed real estate sector that focuses on (high-end) tourists and the coming Middle-East trade centre status.
The leverage is huge. Surely the petrodollars are resilient, but there is an end to it at one point. The US leveraged investors are not all able to buy, or let alone, hold their properties next year. The same applies to the UK investor. There was a huge demand from UK investors to borrow and buy Dubai real estate to get rich...fast. Return were unsustainable at 15 - 20 percent YoY. Leveraged, yes, restricted, no way near credible.

If you look at real-estate prices, you must agree, they came of their peak but no more than that. The coming year(s) are going to be very volatile as I believe demand will remain low, consumers look somewhat closer to home for tourist destinations/vacations and finance (investment confidence) will never be the same. Rates will eventually go up after this dollar debacle being unfolded by the FED.

Basically, the case for Dubai is unsecure.
- If there will be an incentive from buyers to buy at current low lending rates and slightly off-peak real estate prices, you can put your money on defaults in forthcoming years due to the following increase in interest rates.
- Or the downfall continues in 2009 and directly beyond (as this market is not (yet) being propped up by government or SWF's) that will make the prices return to fair value.

If the second situation occurs, then I hope to be a buyer somewhere in 2010/11/12 to enter one of the worlds most beautiful pieces of Gulf-based real-estate as a future investment.

First, I'm going to save. Way to volatile now, and my confidence in the financial system is severely damaged. I bet there are millions of investors who agree with me. The stock market is more attractive than real-estate momentarily. Thats says something...

brgds,

2008 Dec 24 06:11 PM