Freezing low interest rates another boost for the Dubai real estate recovery
Posted on 12 August 2011 with 6 comments from readers
It is coming up to the third anniversary of the great Dubai real estate crash that brought peak values tumbling by more then half and left tens of thousands of off-plan buyers with a major problem.
However, real estate markets always rebound from a bottom unless the country concerned is locked in war, revolution or a depression. None of these apply to Dubai which has become a safe haven for Arabs fleeing civil wars and revolution this year.
Tourism boost
The local economy has also gotten a boost from the influx of tourists who could no longer visit places like Egypt or Tunisia. The hotels expected a bad year and instead got a good one. Emirates Airline and the Dubai International Airport have also benefited. Trade is also up sharply, albeit mainly due to the boom in gold transhipments.
Now we have the reassurance from the Federal Reserve that it will keep US interest rates at present super-low levels for two years. Local banks have already been cutting mortgage rates to their lowest levels ever.
The Fed’s move ought to encourage a few more buyers out of the woodwork. It also makes the dividend payments on bank balances look very poor in comparison with the still rich returns on Dubai rentals, so long as you can find a tenant though that has not been a problem either thanks to the Arab Spring and rents have stopped falling.
Of course, there is still a large supply of property for sale. Dubizzle.com lists around 20,000. But it is harder to find properties in the most favored locations like the Dubai Downtown or the Meadows villas.
Autumn buyers?
Will the buyers emerge en masse this autumn? Estate agents already report a much busier summer than last year. The autumn could be lively indeed but the buyers will likely not be from Europe where there is a financial crisis, although tax exiles are now beginning to discover the Emirates.
That said if Dubai’s business enterprises are cranking up their growth to more normal levels for the city then empty properties might quickly become canny investments in the future and a home for yet another expatriate working in the Gulf.
Dubai rental yields stand out as one way to make income in a world of historically low investment returns.
6 Comments posted by readers:
How much are interest rates in Dubai now? What rates do you consider low? In Taiwan they are between 2.4-3% now. For those with really high risk and not much credit the loans are 3-4% and this is now that rates have been raised to curb high property prices which have climbed for the last 20 years. I’m still not seeing the rebound take place yet in Dubai until I see some good international headlines taking place about new rules,regulations and laws take place.
The government and banks know that when demand is high and risks are low their interest banks at the banks for mortgage loans will drop. High risk=high rates low risk=low rates. Good confidence=low rates lack of confidence=high rates
http://www.centralbanknews.info/2011/06/taiwan-central-bank-raises-discount.html
Reason many banks in the US still charge buyers 5% interest and require 30% down payment along with tax returns means we see further housing price drops the next 6 months.
Ed Note: 4.99% @ 20% deposit is the best available now. Google ‘Dubai Real Estate Authority’ and you can update yourself on the huge progress made in clearing up the crash of three years ago.
Just read this article. Seriously? i mean, seriously? what kind of hack journalism is this?honestly….’Will the buyers emerge en masse this autumn’!!!!! wtf.
wake up. now.
My guess is that today’s Dubai property values will be very high in 5 years time. Values have stabilized in a few “high demand” areas because the demand is driven by an undiscerning customer base. Over time the diabolical quality, pathetic legistration & protection and extremely high maintenance costs will shrivel up your investment like a lettuce left out in the sun. Don’t listen to the short term claptrap splurted from this sector’s cheerleaders. Wait until values meet their likely destiny at the “unbelievably” low range.
My net yield on renting my Dubai apartment is is 8.1% even after taking into account a high maintenance charge. My colleague who had the good sense to buy a villa instead of an apartment is yielding over 18%.
Balance that against the many investors (including myself and probably Mr King) who lost out due to fraud and incompetence.
Going forward it seems unlikely that property prices will decline substantially, barring a catastrophic event. Inflation will take ensure that!
Congratulations Philcu on your amazing investment in the Dubai property circus! I’m glad your “back of the envelope” math is keeping you bullish. I’ve never invested a fil in the low-grade concrete boxes that have brought you so much joy, so I’ve neither lost or gained from this fantastic investment opportunity!
I’ll stick to my London property that’s based on something much more solid than “wishful thinking”.
Good luck with inflation protecting your 8.1% net yield during this “great correction”.
Ed Note: Sorry to pop your bubble but: http://www.bloomberg.com/news/2011-08-14/london-house-prices-plunge-as-financial-turmoil-takes-its-toll.html
Please don’t apologise Ed…. I fully expect London property values to fall much more yet…but with lot’s of upward pressure on rental rates, the yield (that you are quick to cheerlead in the local circus) will improve.
I would only start to worry about London property when you turned bullish! Good luck investing in the local sandpits.