Just in:
U.S. Compliance Takes Center Stage at OKX Following Industry Jitters // Samsung Partners National Heritage Board to Bring a Slice of Singapore’s Cultural Heritage to Samsung The Frame TV // Experts come together to support updating the city’s nature conservation masterplan // No running of govt from jail, says Delhi Lt Governor // In Lok Sabha Polls In Punjab, AAP Is Advantageously Placed As Against Its Three Rivals // Arvind Kejriwal Was Used By BJP In 2011 Movement To Take On The Congress // Party Nominees Refusing To Contest: Major Perception Threat For BJP // Konica Minolta is named ASEAN 2023 Market Leader in Colour Light and Mid Digital Production Printers // Superland Announced Annual Results for 2023, 2023 Net Profit Increased approximately 39.5% to approximately HK$22.2 million as Compared to the 2022 Adjusted One // Ajman Celebrates Conclusion of Ramadan Activities with Grand Ceremony // German Job Market Resilience Bodes Well for Economic Recovery // Emirati Aid Reaches Ukraine as Food Shortages Bite // Lisboeta Macau’s world first LINE FRIENDS PRESENTS CASA DE AMIGO and BROWN & FRIENDS CAFE & BISTRO has officially opened // Sharpening the Focus: Sharjah Health Department Refines Evaluation Criteria for “Healthy Schools Programme” // Hullabaloo About Electoral Bonds May End Up As A Whimper Pre And Post Poll // Experience Ultimate Shopping Freedom at 4.4 Shopee Spree: Don’t Worry, Shop Shopee! // Universal Language for Healthcare: General Authority Embraces Global Coding System // Sunshine’s Debut Features Leave Tech World Scratching Its Head // AIA Hong Kong Wins More Than 20 Accolades at MPF Ratings MPF Awards, BENCHMARK MPF of The Year Awards and Bloomberg Businessweek Top Fund Awards // Andertoons by Mark Anderson for Thu, 28 Mar 2024 //
HomeColumnsWhat next for Dubai property?

What next for Dubai property?

|By Matein Khald| During the 2008 post-Lehman financial meltdown, home prices in Dubai fell by 60-70 per cent and a generation of offplan flippers and leveraged investors/buyers (a mortgage, by definition, is a highly leveraged and speculative financial product. There is a reason the word “mortgage” derives from the French “mort” or death!) were wiped out. However, the Arab Spring, global liquidity and the successful debt restructuring of Dubai World saw a massive rerating of Dubai real estate in 2012-14. This property market peaked in April 2014 and prices have since fallen 20-25 per cent. The Dubai property market is in its first major correction since the effects of the credit Armageddon of 2008-10. What are the prospects and opportunities for Dubai property in 2015?

It is premature to bottom-fish in most segments of the property market. Average villa/apartment prices have fallen at least three to four per cent in the first four months of 2015 but has not deterred developers from new supply. Property transactions have, not surprisingly, plummeted to a trickle compared to the peak levels of early 2014. Banking sanctions and recession in Russia has meant an ice age for Russian buyers. The fall of sterling from 1.70 to 1.50 against the US dollar has also made Dubai property expensive for UK buyers.

The Dubai government has rightly discouraged speculative bubbles by raising property transaction taxes and the Central Bank of the UAE closely monitors bank lending to real estate/construction (16 per cent of total loans in the Arab world’s largest banking sector). The memories of 2008-09 are far too traumatic for bankers, investors and homeowners to indulge in the luxury of amnesia. This is the reason that offplan “developers” can lure few Dubai residents to their “pie in the sky”, highly-speculative schemes and must rely on outrageous marketing gimmicks like free luxury sports cars.

ADVERTISEMENT

Both CBRE and JLL data confirm that the legitimate housing market is in correction mode in 2015. JLL had predicted that the oil price crash and the lack of affordability metrics in the UAE would mean at least a 10 per cent additional correction in Dubai home prices and rents. Since there has been no revival in property prices three weeks before summer and the holy month of Ramadan, JLL’s market call is unquestionably in the right direction. Standard and Poor’s, one of the world’s leading credit rating agencies, expects Dubai property prices to fall 20 per cent due to new unit supply risk and investor sentiment hit by oil prices. I trust S&P forecasts since they are not in the business of selling dreams, hype, overvalued property or hugely toxic leveraged mortgages to “investors”.

It is no coincidence that bear markets in Dubai property have been correlated with major bull trends in the US dollar. Think about the savage home price corrections of 2008-09 and 1997-99, which both coincided with King Dollar. This is because oil prices are highly inversely correlated to the US dollar. Since April 2014, the US dollar index rose almost 20 per cent until mid-March 2015 while oil prices fell 50 per cent, a $360 billion deflation shock to the GCC in lost revenues. If the UAE dirham was floating, it would have depreciated against the US dollar as other petrocurrencies from the Canadian dollar to the Norwegian kroner have done (The Russian rouble, of course, is both petrocurrency and Putincurrency).

However, the UAE dirham is pegged to the US dollar so the burden of adjustment to an oil/deflation shock falls on the property market and UAE equities, which both peaked in May 2014 just as the US dollar Index began its epic rise. A new variable in this cycle is the spike in expected deliveries, expected to range from 22,000 to 25,000. This is at least 10,000 units more than new supply in 2014 and makes an autumn bull run in the property market impossible. Note that many sellers based in Britain, Russia, India and Carolingian Europe will slash ask prices this summer to cash in on their 2015 currency windfall due to the rise of the UAE dirham/dollar since last summer. As with crude oil in 2014, the market faces a simultaneous demand and supply shock.

ADVERTISEMENT

ADVERTISEMENT
Just in:
Meta Earth Official Website Launch: The Pioneer Explorer in the Modular Public Blockchain Domain // Konica Minolta is named ASEAN 2023 Market Leader in Colour Light and Mid Digital Production Printers // Samsung Partners National Heritage Board to Bring a Slice of Singapore’s Cultural Heritage to Samsung The Frame TV // No running of govt from jail, says Delhi Lt Governor // Emirati Aid Reaches Ukraine as Food Shortages Bite // Renewables Surge Sets Record, But Global Equity Lags // AI Boost for Galaxy Devices: Samsung Expands One UI 6.1 Update // US reiterates concern over Kejriwal arrest, Cong accounts // Infineon and HD Korea Shipbuilding & Offshore Engineering jointly develop ship electrification technology // Court Sides with Coinbase on Wallet Service, But Staking Program Remains in Limbo // Hullabaloo About Electoral Bonds May End Up As A Whimper Pre And Post Poll // Experts come together to support updating the city’s nature conservation masterplan // German Job Market Resilience Bodes Well for Economic Recovery // Ingdan Announces 2023 Annual Results // Arvind Kejriwal Was Used By BJP In 2011 Movement To Take On The Congress // Universal Language for Healthcare: General Authority Embraces Global Coding System // Party Nominees Refusing To Contest: Major Perception Threat For BJP // Ajman Celebrates Conclusion of Ramadan Activities with Grand Ceremony // Hope for Respite as UAE Endorses UN Plea for Gaza Truce // In Lok Sabha Polls In Punjab, AAP Is Advantageously Placed As Against Its Three Rivals //