De Graaf

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

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,