Peter Cooper: Why S&P might be wrong about a 20% fall in Dubai house prices

Posted on 25 June 2015 with no comments from readers

When a guy I know from the last property boom who managed to sell out and go home to Australia with $1 million wrote to me yesterday about the nice Ramadan deal he has just struck on a Dubai villa that means something.

I can’t help but think Standard & Poor’s is wrong in its latest prediction that house prices in Dubai are going to fall by 20 per cent. Sat in Paris the S&P economists are running their slide rules over Dubai and perhaps missing a few of the relevant facts in reaching such their conclusion.

Oversupply?

Property supply this year is running at twice recent annual averages. But then population growth of six per cent means demand for say 18,000 units while estimates for delivery are around 20,000. Not much of an oversupply there.

What about the Dubai economy hit by a halving of oil prices? Well prices are coming back and the UAE is running a deficit to make up the difference. Dubai salaries have been growing at a healthy pace this year.

Recently the property sale has faced an inflation in the real estate industry. Because, the population has increased much and so the sale also gets doubled. This makes the building constructors to earn more and more profit than what they expected. I really wonder people why not look here and worry about the population increase. The people should think about the economy of the country and their growth in the organization.

If anything the complaints I get are about rising inflation and how Dubai is becoming too expensive (click here). That’s not usually the sort of economy where house prices crash by 20 per cent.

There is also the worry about global interest rates being on the way up. But just how far will the Fed get in raising rates before it crashes global financial markets and has to put them down again?

House prices are starting to anticipate more expensive mortgages that may be longer in coming. Besides locking into today’s bargain mortgage rates makes perfectly good sense, and if you think they are going up why not do it now?

Then again there are still actions Dubai could take to keep its housing market afloat. For example, rent controls could be dropped like in Abu Dhabi. At the moment sitting tenants can keep their previous low rents running for years and investors just don’t like taking on that sort of risk.

Executive action?

The government could also ease back on the emergency measures it took in late 2013 to cap what looked like becoming a runaway boom after a 35 per cent surge in house prices.

Transaction fees might be cut from four back to two per cent. The cap on mortgage lending could be eased at the banks. Why not let them decide what risk the market should take in home loans? It is not rocket science.

Perhaps what S&P is saying is already in the price of a house in Dubai and you need to look further into the immediate future. Maybe the bargain hunters like my friend braving the heat of Ramadan, have the right idea again.

Peter Cooper is the editor and publisher of ArabianMoney and a 20-year veteran of Dubai business journalism.