Apologies I got this CNN report muddled up with one from Al Jazeera – sorry for the error.

I prefer this more honest report http://www.youtube.com/watch?v=67dYh4UQmUE&feature=related.

I was particularly interested in the part about “one of the highest per capita levels of debt in the world”. I thought that the UAE is the world’s largest per capita net creditor country?

I saw this over at Calculated Risk Blog. Bizarre. Any truth to it?

http://www.calculatedriskblog.com/2009/02/skips-in-dubai.html
“There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.

Per capita debt excluding mortgages perhaps – but then mortgages are the majority of debt in most countries. Overall the UAE has the strongest finances of any country in the world.

Dubai emptying? That is an exaggeration but there are legions of construction workers going home, that is true.

We here in the U.S have heard all that about “real estate spin”…or overly biased analysis’ on real estate recovery. The bias is showing in your statements; “cnn balanced” ? lol. mainstream media serves the interests of the zionist elites. Stay objective…we simply need oil prices to go back up and then there will be capital for the real estate markets to recover; its that simple.

Peter,

Your weblog is bordering on the ridiculous with apparently very little thought given to what you are writing and what you have written in the past. On UAE property you were a HUGE promoter and believer in Dubai property all the way up to when the credit freeze saw a sharp contraction in property purchases. Now, mere months after prices started to fall you seem to be saying the bottom has been reached and bargains abound. It is incredibly naive to think that property markets – or indeed any markets – crash and rebound within a matter of months!! Take the case of Asia in 1997. The property crash took 3 years to see a bottom, and a further 2 years to see a recovery. Markets do not recover in a V shape – they tend to crash sharply, and then experience a period of illiquidity and gradual decline before finding a bottom, at which they consolidate for a period of time before the recovery starts. Take the UAE markets as a precursor – they started to fall many months before the global economic impact registered on property and the real economy. Stock markets tend to show future trends six months ahead. Witness the UAE markets now – they are falling gradually on low volume.

In stating that Standard Chartered are offering you mortgages you fail to mention what value they attach to the property you mention. I am sure it’s not anywhere near what it was valued at in 3Q08! Furthermore, 8% mortgage rates are a stern reflection of the perceived risk attached to Dubai property. In addition, quoting and not questioning the number of freehold properties and drawing a conclusion that Dubai is a small market is irresponsible. The low population base – especially in terms of those that can afford property – highlights the potential for oversupply. Surely you can see that a population of 1.4m in Dubai implies less than 25% could actually afford property, and of those 25% might actually buy. That being the case you would be looking at less than 70,000 units.

To be fair I was positive about Dubai property right from the start in 2002 – while most were skeptical – and have been caught out by the sudden and dramatic slump in the oil price. Those who bought early made great profits but I am seldom given credit for having written about this at length and for many years. If you want to see the evidence have a look at the two chapters on Dubai property in my book.

In detailed property articles I now talk in terms of scenarios and I agree that the sudden recovery scenario is looking less and less likely, and a more typical (or even a worse than usual) cycle is looking more probable.

On the population question, you could assume 50% might buy and then you have a demand for 140,000 units against less than 80,000 built or being built (50% home ownership among the middle class would be low for any city). But without adequate home finance and with people terrified about job prospects, this is perhaps a little academic. Your longer recovery cycle does indeed seem to fit the bill unless oil prices shift back up.

I am certainly not denying you credit for being positive in 2002. That aside I would argue that the slump in the oil price has little to do with property decline in Dubai. Dubai’s GDP is 4% oil – hardly much of a factor. The decline is due to a) over speculation in off-plan whereby end-user demand was not there b) the obvious effect of over-leveraging c) impact of the global crisis on an economy that has been very successfully globalised – and d) artificially high and unrealistic prices.

On the population question – I would argue that property for the middle class you mention does not exist. A basic one bedroom flat in Dubai is unaffordable to he middle class, let alone villas. The bulk of property is priced at the luxury end of the market – with the so called middle class commuting from Sharjah. A villa on the palm at US$2m is neither affordable to the middle class nor realistic in overall price terms. The average price of suburban property – which lets face it is what we are talking about in terms of distances from CBD from the Palm and Emirates Hills – in the US, for example, is US300-400,000. How many middle class buyers do you know that could put down 30% (US$600,000) cash for a US$2m property? In other word, my demand estimates for units based on % of population is based on those that can afford – and in that respect less than 80,000 units is probably hugely optimistic. Watch rents for an indicator – they lag property price decline by 4-6 months – anecdotal evidence shows that a) they are on the way down, and 1 cheque policy is becoming rarer and b) what happens in the middle of the year when the school term is over and it is expected a large number of expats will leave.

On oil prices – again, I disagree they impact Dubai property. In any event, given the lessons learnt from this crisis (hopefully) when oil does eventually spike up, revenues will be used to support and build infrastructure rather than km high towers

Michael, you’re confusing me. You mention the so called middle class who commute from Sharjah and then make reference to Emirates Hills and The Palm as unaffordable to middle class. Whoever said that villas in Emirates Hills or on The Palm were middle class?

Unfortunately the problem with the middle class bracket is that it’s so broadly undefined. To me, The Springs, Meadows and most of Mirdif would be middle class. In any event, these were however over priced and would have corrected even without a global crisis (IMO). The majority of commuters from Sharjah can not be considered as middle class. If you live in Sharjah and take offense to that then please note that I did say the majority.

I am interested to see how long it takes for confidence to be restored to this market. Many people seem to think that once banks start offering (real) mortgages the recovery process can begin in earnest. I don’t agree with this as I believe that many people will rather rent, at what are becoming more affordable rents, than buy. Ask yourself…would you buy?

Given the extreme volatility the property market demonstrated, I can’t see who would be prepared to invest here for a long time to come.

Luke,

I think you misunderstand, or I wasn’t clear. What I am saying is that for the middle class, recent and even current pricing of property is unaffordable. What should be middle class communities, ie Springs, Meadows, Marina etc are priced out of reach for the definition of “middle class”. I do not live in Sharjah, no. However, the middle class in the past year, are being forced out of Dubai given the exceedingly high and unrealistic rents commanded in what should be the aforementioned middle class communities.

I agree with you it will take more than lending to kick start the recovery process. That will not start until prices are at a realistic level. As for myself, I did not buy, nor would I until prices fall to realistic levels – and those levels are a good 50% + down from current

Michael & Luke – I once lived in Central London but gradually got forced out by the foreign millionaires – it could be the same happens in central Dubai. The attractions of a tax free base are considerable to such folk, who I hear have been leaving London – partly due to tax changes. Perhaps they are following me here now!