Dubai house prices facing a double dip?
Posted on 15 March 2010 with no comments from readers
Dubai house prices crashed by 50 per cent last year in the wake of the global credit squeeze that followed the financial crisis. But since last autumn there has been some recovery, and that has not even been knocked off course by the publicity surrounding the Dubai debt crisis at the end of last year.
Indeed, the latest news is of a mortgage rate war between the major banks. HSBC Premier clients are being offered rates as low as 6.25 per cent for 75 per cent of valuation. That compares with rates of eight per cent or higher, and 40 per cent loan-to-value at the market nadir.
Falling interest rates
Usually housing markets bottom out when interest rates are at their highest. Usually a significant change in interest rates is the signal that the market recovery has begun.
Why then do many local experts still think a double dip is coming for Dubai house prices? These are generally folk in the real estate business and normally have a bias towards optimism.
First, Dubai is still largely a cash market for housing, and so mortgage cost is not such a big factor in the market as it is elsewhere. Secondly, the supply and demand situation in the emirate just does not support higher prices, quite the contrary.
Everywhere you go in Dubai there are half-finished construction projects but if you look closely then actually a great many of them still show signs of life. The problem is that as these projects gradually come onto the market they will depress prices further.
Damac contracts
Remarkably a developer like Damac, for example, is still placing large construction contracts for apartment blocks, so the oversupply problem is still growing.
The same thing happened in Hong Kong in the late 1990s and kept prices falling from 1997 to 2003 when they finally bottomed out at 70 per cent down from their peak levels. Admittedly Hong Kong was battered by the dot-com crash and SARS crisis in the early 2000s but arguably the supply problem was less of an issue than in Dubai today.
That said buyers who choose to buy property in the most exclusive locations, where building more homes is simply not possible, are probably not going to see much downside to current prices.
no Comments posted by readers:
we went through springs on weekend looking for new digs and amazed to find at least a third villas empty. Go look for yourself – you can tell empties as they have no cars, plants or doormat and a quick glance through window confirms no furniture or curtains.
springs 3 was worst and seemed to be close to half empty. strangely though the mosque and shops carparks were chocka block full of cars. as you rightly assert, prices have halved since same time last year in springs and occupancy still appears very low…
There are surely some signs of life in the real estate sector of Dubai as it is one of the most important tourism and business spot of the world. According to some experts the house prices in Dubai will rise this year when the demand and supply gets leveled.