Is HSBC getting Dubai property wrong again?

It was interesting to read the reflections of The National columnist Frank Kane on the Dubai property market after a dinner party hosted by HSBC recently. His conclusion from the event, which may or may not be the bank’s official line was that ‘Dubai still has the millstone of the property crash around its neck’.

There is indeed a gloomy school of thought among bankers that sees real estate as the big negative: the debts, the empty real estate, the drag on the future growth outlook. Yet these are the same bankers who would definitely not have advised you to buy a house in Dubai in 2002-3 when the boom first started.

Bad market timers

Of course, if you had wanted a multi-million-dirham loan to get you into this market right at the very top then they would have been glad to assist you, and would now be calling in your bouncing checks. So how sound is such advice now?

If you buy a property in Dubai today, perhaps to live in yourself, then it could be cheaper than renting in many cases. If you buy something to rent out then you need to be aware that there are many empty units and so either the price must be so good that it can be left empty until times get better, or you buy in one of the better neighborhoods where people most want to live.

Of course what really matters are personal circumstances. Buying a home with a three-year view is never a good idea. But those coming to Dubai on a three-year posting with a multinational might think in terms of renting out their accomodation later. Investors have a different perspective and may be looking for a safe haven for their cash more than anything else.

The main trick with real estate is always to buy at a cheap price. Is Dubai real estate cheap? Well if you went to Cityscape last week you could make the comparison.

Top British developer St George was offering the tallest residential building in the UK opposite the home of spy agency MI6 (good tenants perhaps and the new US embassy will also be nearby). Damac was selling units in Damac Heights, a tower almost twice as high in the Dubai Marina, built to a very similar specification.

The only difference really was the price, and arguably a better location for Damac Heights. You will pay five-times as much in London as Dubai.

Dubai or London?

Now which metropolis has the brighter future? The financial and trading hub of the oil-rich emerging markets of the Middle East or London as the financial capital of a recession-struck continent? Certainly property prices are either very cheap in Dubai or massively over-the-top in London, or most likely both.

It is the growth prospects that you should really consider. From 2003-2008 Dubai was the fastest growing city in the world with GDP climbing 13 per cent each year. London is never going to manage anything like that and current high prices reflect a boom that is long over and now fading into a serious recession.

Will Dubai gets its mojo back and earn its way out of its debts? The city is one of the few in the world with the trading, transportation, tourism and urban infrastructure to do just that. You just need the imagination to see that the success of the recent past can be repeated in the future, and that a recovery is far more likely to happen than anything else in Dubai.

It is an economic system that has worked brilliantly in the past and so can do so again. Debts are only a problem for economies that are ex-growth! Even bankers should know that.