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15 October, 2008

Dubai property bubble bursting

"Welcome to Dubai Aromatic City: enjoy an exclusive lifestyle by the azure-brown waters of the Arabian Gulf, or take a dip in your villa's private cess-pool as you watch the rich rivers of effluent run down to the sea,"

Dubai is in the shit in more ways than one. Raw sewage flowing onto tourist beaches is foul enough, but fouler still would be a property sector meltdown:

Then, over the summer, Morgan Stanley issued a note which said that Dubai property prices would fall by 10% by 2010. Quite simply, there may not be enough demand for the wave of new property coming onto the market. To a society used to easy returns, this was a shock.

It's not actually a shock to anyone who bothered to do a few sums on a pocket calculator, as Matein Khalid did back in 2005. He predicted a glut by 2008, which a later report by EFG Hermes also indicated.

Moody's is also bearish: it believes that Dubai may have to borrow from Abu Dhabi or the federal UAE government (which is basically the same entity). The cost of insuring Dubai Holding's bonds have quadrupled since May.

Even Gulf News reports gloomy tidings from Colliers International and from Citi:

"In our view, there is legitimate concern the Dubai market is enduring a liquidity squeeze, witnessing macro-economic and credit deterioration in most of the countries from where its expat buyers hail, maturing from a regulatory perspective and seeing the beginnings of a shakeout of small developers," said an analyst in yesterday's Citi Research real estate report.

No wonder that 75% of Arabian Business readers wouldn't touch Gulf real estate with someone else's bargepole.


Comments

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52 Comments:

Blogger Kyle said...

Fabulous write-up and true in tune to the T.

I just posted a label comment on the Community Blog, which in essence addresses the 'best is yet to come' factor. Of course, the best is from a going down in a handbasket / meltdown point of view.

Well done with this piece.

15 October, 2008 08:48  
Blogger allie said...

Oh goodie, you're talking about it too...what happens now when there's a Dubai Eye and there's nothing to see because everything's been razed to the ground and sold as scrap? And to think that I still get feelers to return back there...

15 October, 2008 10:10  
Blogger coffee said...

Introducing the new kalosi.blogspot.com. All thing about coffee thats awaken you...

15 October, 2008 11:52  
Anonymous Anonymous said...

well the whole real estat emovement of dubai was a bubble from day one, only idiots like 'gulf news' believed it had any fundamentals in place. anyways, the whole real estate rental and sale business in dubai has largely been built on the tears and misery of the underprivileged, for a few to multiply their wealthy.maybe it is payback time.

15 October, 2008 18:58  
Anonymous Anonymous said...

About f.cking time. The day of reckoning is finally here. I grew up in the UAE but had to leave as I was tired of being squeezed and exploited by a system that defied the basic laws of economics, not to say anything about decency.
I hope that the authorities learn something from the crash.
"You can fool some of the people sometimes, but you cannot fool all of the people all the time."
Greed never brings good.
Dubai and indeed most of the Gulf missed its date with history and destiny. Time will tell, but the whole region is a bubble built on nothing that will just fade away back to obscurity and obscurantism if they keep having this attitude.
For a people that are mix of Iranian, Persian, Indians, Africans, etc... this relentless phobia, and refusal to integrate expats, makes very little sens.
Some expats have been there for over three generations!!
Give ALL the people a stake in the country. Then again it might be too late. Here in the free world Dubai is now perceived a failed social and economic experiment. More six star hotels, waterpark, golf courses, Cyclones, etc.. will fix that.
Dubai = Hasbeen

15 October, 2008 23:57  
Anonymous Anonymous said...

All I can say is invest in a nice handcrafted jewelry piece:

http://jewelry.zahras.com

safer than Dubai Property

16 October, 2008 08:10  
Anonymous Anonymous said...

Dubai's property boom is financed by internationsal organised crime. There may be a slowdown, a small correction, but it won't last long. My friends in Dubai airport tell me of the private jets flying in from Afghanistan, Russia, Eastern Europe etc., with crates of dollar bills. The Dubai property sector functions as a laundromat for much of the dirty money in the world. That is why there will always be turnover, property getting bought and sold. For more info, read McMafia by Misha Glenny (almost certainly banned in the sandlands), or Ian Fraser.

16 October, 2008 14:36  
Anonymous Toda Merda said...

Illegal dumping? The shit-laden tankers queue for over three days to offload!

Are there storm sewers in Dubai? Isn't JW a plant at BBC by DXB PR machine?

16 October, 2008 16:05  
Anonymous Anonymous said...

Financed by organized crime? Yes, maybe, but with the "War on Terror" raging, the IMF has already slapped Dubai on the wrist and imposed tighter controls.
Laundering money still require a legitimate, legal, business model and customer base. Even if all the gangsters of the world were to recycle their cash in Dubai Real Estate, the fact is that they only provide the spark, not the fodder.
If no one else buys then there is no fresh injection of liquidity and no recycling. Ultimately the system runs out of comburant, not fuel.
Given the fact that the crisis is now a global phenomenon, dirty money might simply want to pick up bargain properties in London, Tokyo, or New York rather than just dump cash in Dubai with little hope of getting most of it back.
The only way of propping the real estate market is give foreign resident a stake in the country.
I am not advocacing full citizenhip but guaranteed residency for current and future generation with all civic rights.

16 October, 2008 16:05  
Anonymous Anonymous said...

I can't wait.

And what are all the labourers going to do when they realise they aren't going to be paid?

History has shown that every time the conditions created in Dubai have existed there has been an uprising...

Burn baby burn....

18 October, 2008 11:31  
Anonymous Anonymous said...

The GCC sandpits have always been riding for a big fall. One big egg, one risky basket. Splat!

18 October, 2008 16:13  
Anonymous Anonymous said...

as much as you all would like to see dubai property market fall for whatever reason, IT WILL NOT.

even if it did, it wont be as bad as you might like it to be

21 October, 2008 01:12  
Anonymous Anonymous said...

al hamdulillah, the prophet has spoken on this!

21 October, 2008 12:24  
Anonymous Anonymous said...

@IT WILL NOT. The only reason why property values have not collapsed is because Abu Dhabi pumped money in. How long do you think that will last as oil prices fall?
http://blogs.ft.com/gapperblog/2008/10/tennis-property-and-financial-bail-outs-in-dubai/

21 October, 2008 13:48  
Anonymous Anonymous said...

hmm lets be realistic, property prices may fall for some apartments, not the emmar biult apartments or dubai marina due to location etc, but villa prices will never fall due to the demand for them, lets all agree on one thing and that there is a huge shortage of villas, cos who wants to live in an apartment when you can live in a nice villa with a garden

21 October, 2008 22:28  
Anonymous Anonymous said...

HERE IS HOW THE MOST MODERN, WORLDS BEST, LIBERAL, WESTERN GULF COUNTRY CREATES DEMAND FOR ITS REAL ESTATE. BY DECIDING WHO SLEEPS WITH WHO AND WHO IS FAMILY OR NOT. TALK ABOUT 18TH CENTURY TRIBAL RULES!SOME NEVER CAME OUT. AND ITS OFFICIAL! ( oh, you guys dont worry, it applies only to the brownies)

"Only immediate family members can share villas - official"
By Abbas Al Lawati, Gulf News Staff Reporter
Published: October 21, 2008, 23:45

Dubai: Only immediate family members are allowed to share villas, an official from Dubai Municipality has clarified.

Dubai Municipality's Head of Building Inspection section in the buildings department, Engineer Omar Abdul Rahman, said that distant relatives such as cousins and their families will not be allowed to share villas, assuring residents that the "one family per villa" rule still applies.

"As long as the tenants are members of the same family they can live in one villa, but distant relatives cannot," he said, adding that every case is assessed individually.

Engineer Abdul Rahman, however, said that traditional joint families need not worry. Naturally growing families, he said, were permitted to live in the same villa, such as cases where a father's children were starting families in the same house.

"If it's a family made up of a grandfather and his children together with their children that is fine, but you can't bring your cousins and their families to live with you," he said.

22 October, 2008 13:39  
Anonymous Anonymous said...

I never really understood why they focus on "on family" rather than focusing on actual number of occupants, like 5 bedroom villa should have no more than 10 people etc......

The rules seem more "nanny -state" like than even Singapore !

22 October, 2008 13:44  
Anonymous Anonymous said...

oh..there is a small difference.singapore happens to be civilized. and also dont think racism is official there.

22 October, 2008 15:16  
Anonymous Anonymous said...

it's official. Dubai real estate is doing so well, real estate giant DAMAC CEO has frozen all recruitments for an indefinite period.They have even terminated people with whom they signed contracts and were to join this month. Inside Info.

23 October, 2008 12:40  
Anonymous Ben said...

Dubai has been very successful in terms of real estate. The global market has no impact on it. People with money will still buy and sell their properties.

24 October, 2008 08:29  
Anonymous Anonymous said...

@Ben, to a certain extent your reasoning holds true but with New York, Tokyo, London, Paris, Mumbai, etc.. real estate plungin where would you rather invest if you had the money? Keep in mind that even the Financial Times says that the Real Estate is over and that the only reason it did not burst was because Abu Dhabi pumped cash in.
As for the rest of working expats that made up 80% of Dubai Real Estate customer base, with all the inflation, indirect taxation, etc.. where do you think they will invest the little money they have left? That is if they had any money left to invest.
There is a case of Dubai being over confident and believing its own hype. The simple truth is Dubai is not Las Vegas and Qatar, Bahrain, etc.. are all copying the model and offering similar proposition.
The only solution to kick start the whole thing again would be to open casinos and legallize gambling on these off-shore island. Is anyone from Dubai Govt. reading this?

24 October, 2008 13:40  
Anonymous Anonymous said...

Gentler kinder Sheikdom?
This reminds me of Africa. When men send the family back home the whole economy collapse.
A family lives in a house, sends kids to school, needs a big car, and consumes.
A man, lives in a studio, and eats a sandwihch, drives a small car or takes a taxi to work, and spends nothing.

No place to call home...
By Alice Johnson, Staff Reporter
Published: October 23, 2008, 23:55


Dubai: Rising rents across the Emirate are forcing families to live in multi-occupancy villas. Tens of properties have been converted illegally by landlords, who separate rooms and install plumbing to accommodate more people than is stipulated in building regulations.

Today, the Building Inspection Department at Dubai Municipality has been cracking down on villas that break building regulations. Landlords are given warnings to change the situation. If they do not, Dubai Electricity and Water Authority have been instructed to cut off utilities, forcing the tenants to leave.

Campaigns are currently ongoing across Dubai, with many families being evicted in Rashidiya, Karama/Mankhool and Satwa.

Residents say they cannot find affordable accommodation.


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


One family in the Rashidiya area were forced to live in the dark, hot conditions while they looked for new accommodation.

The head of the family, who would not reveal his name, said: "I am looking for a new room at the moment, but I'm planning to send my wife and children back to India - it's too expensive. I can't prepare food with no power, so the children are not eating properly. My daughter is only 3 years old and she has lost 5kg. My son is ten and he has stopped going to school. The teacher has been asking him where his homework is, but he can't do it in the dark. We don't sleep because it's too hot and we can't eat properly, so he can't go to school."

Families living in villas that have had their utilities cut have been using facilities at friends and neighbours' houses, nearby hotels and using water from mosques.

While the landlords have been served notice to evict tenants of villas such as these, they themselves are not facing fines or prosecution.

During Ramadan, an Abu Hail villa had its utilities switched off, as reported in Gulf News.

Resident S.F.A., who did not wish to be named, said: "My whole family was keeping the fast but, with the electricity disconnected, I am now the only one fasting; it's unbearably hot for my family to be fasting."

Electricity to the building was terminated as part of a larger Dubai Municipality effort to crack down on the illegal partitioning of villas (that accommodate more people than building regulations allow).

It was a similar story for a Karama villa in July.

The landlord had converted three garages at the villa into accommodation for more than four families. The utilities were cut on July 23, and families said they were having to stay at friends and neighbours houses until August 1 (when new accommodation became available).

Resident T.S. said: "You can't breathe inside, it's so hot. People come home to pack after work and then sleep at friends' houses. One lady is staying with a friend in Satwa, but they have also been given the notice."

She continued that she purchased some candles, but was unable to use them for light, as they had melted in the summer heat

"It's too hot to even pack your things, you can't breathe inside. I'm sweating a lot and have become dizzy. None of us can sleep, and you can't go to the office the next day, it's very difficult. I have taken two days off work to find somewhere else.

"I have been looking in Bur Dubai - I got the newspaper and I have been ringing all the numbers, then we had to personally go and see all of them. They want Dh5,000 as a deposit and then a cheque for Dh20,000. You can't get Dh20,000 in a day. If you apply for a loan, you also can't get this in a day.

"I was supposed to go on leave, but I had to cancel. I already had bought my ticket," she said.

Other residents said that they were paying Dh3,500 a month for the illegally separated rooms, and that it was difficult to find affordable accommodation in Dubai at such short notice.

Several families of well-wishers from the Indian community in Dubai contacted Gulf News, after reading of the situation of these families.

John, who did not want to give his family name, visited a Karama villa and offered to buy water and food for the families living in the dark.

"The government needs to do something about it. These people contribute to the UAE economy, and they are suffering, not the landlord. Now, it is difficult to know what is legal and what is not (in terms of housing). What is happening to the landlord? Nothing. It is the children that are suffering. We can't take the heat for 15 minutes, how can they stand it all night? Now, it is a better option for them to return to their home countries. Maybe they have family there," he said.

24 October, 2008 13:44  
Anonymous Wallsingham said...

I could never quite see the point of Dubai. Is there one?

24 October, 2008 18:26  
Anonymous Anonymous said...

There was a point in Dubai 30 years ago when Beirut lost its title of Switzerland the Middle East. There was no internet, rigid trade routes between the East and the West, very little cheap boozing and horin, and a need for Banks, and projects that would conveniently launder your money. The real boom came with the fall of Soviet Union. It has never stoped since. Is Dubai relevant today in its current form? No. Other GCC countries offer the same unique selling proposition. The question is simple... What can Dubai offer that no other country in Middle East offers? Answer is simple.... GAMBLING. Then the whole equation will make sense again.

25 October, 2008 01:01  
Anonymous Anonymous said...

And after the Las Vegas model where gambling and prostitution is legal, we could apply the Amsterdam model where drugs are legal. That will really boost property values.

25 October, 2008 14:36  
Anonymous Wallsingham said...

when Beirut lost its title of Switzerland the Middle East.

I believe the Swiss would be insulted by that one.

25 October, 2008 16:52  
Anonymous Anonymous said...

I am sure the Swiss reference was made for the banking system not cleanliness, chocalates and cuckoo clocks.

25 October, 2008 22:24  
Anonymous Anonymous said...

http://www.gulfnews.com/nation/Housing_and_Property/10254183.html

26 October, 2008 00:31  
Anonymous Anonymous said...

I have noticed that the thing is all about ego...

After the economical crisis and after borrowing a lot of money from Abu Dhabi ... Dubai' governer introduced a new project that will house 300000 people !!! A huge tower that is three times as big as Burj Dubai... What the F U C K are you thinking ...

Its all about ego and sweeping the problems under the carpet...

Well there is nothing we can do... except taking it in the ass and cheer for his highness vision..

Emarati

26 October, 2008 01:27  
Anonymous Anonymous said...

Speaking of taking in the ass. Maybe we should rename AUH and DXB (Sodom and Gomorrah)
http://en.wikipedia.org/wiki/Sodom_and_Gomorrah

To the contrary there is a lot you can do about it. First. Leave the city/country. Do not invest in the country. Tell your friends and family what a f..c up this place is. Send your cash outside.

26 October, 2008 15:36  
Anonymous Anonymous said...

"Tell your friends and family what a f..c up this place is."

I've tried telling my family this, and they think I'm crazy.

27 October, 2008 13:10  
Anonymous Anonymous said...

Well there is nothing we can do... except taking it in the ass and cheer for his highness vision..

Emarati



Exactly. Because taking it in the arse and cheering for your 'leaders', is safer than changing the system. Ditto every other Arab country. Inshallah. Hamdillah. And it's always someone elses fault.

31 October, 2008 09:07  
Blogger Doc Mood said...

Up to 50% drop in property prices is predicted by some reliable sources. I am getting over 30 distress sales a day right now and those that aren't in distress are willing to bring their premiums down from 40% + to around 5% or even ZERO in some cases. People who have bought property outside the "good" areas are willing to dump their property at a small loss...this will increase in 2009. Many estate agents are going to kick the bucket next year

01 November, 2008 22:18  
Blogger Doc Mood said...

@anonymous...you might like to know that Emaar is facing a problem with MANY buyers preferring to LOSE the 5% deposits they've paid rather than pay up for a hugely overpriced property in a crashing market. The EMaars, Damacs etc. in Dubai are gonna have a tough time and believe me it WILL crash...and I'm not one of those that want it to as I still have proeprty there and haven't been able to sell it at any kind of decent price.Luckily it's not mortgaged so i can just hang onto it through the next few years but those that can get out should do so quick time ... even at a loss if you don't want to be hammered .

there are some interesting insider comments at www.pristinepakistan.com I'll stick a link on it from my blog

01 November, 2008 22:26  
Anonymous Anonymous said...

Well, it looks like people who have loaned and gambled it on investing on properties here seems to be still in a state of denial.

02 November, 2008 11:20  
Anonymous Anonymous said...

TWO HEADLINES ON SAME DAY ON "GULF NEWS", OBVIOUSLY PLANTED BY DUBAI PR TO SPIN ANY PERCEPTIONS ABOUT DUBAI GETTING TOO EXPENSIVE FOR PEOPLE TO MOVE IN ( WRITTEN BY SAME PERSON ON SAME DAY, GIVES DIFFERENT CONCLUSIONS)



Villa rents soar in Dubai as apartment sector cools

By Suzanne Fenton, Staff Reporter
Published: November 02, 2008, 23:26



Apartment and villa rents in Dubai set to slow down

By Suzanne Fenton, Staff Reporter
Published: November 02, 2008, 23:26

03 November, 2008 15:49  
Anonymous Anonymous said...

No amount of PR, spin, etc.. will disguise the fact that Dubai is no longer the hub to cover the region from. A lot of multinationals now find that Dubai is too expensive and chose alternate cities in the region or Europe to cover or manage the area.

03 November, 2008 18:19  
Anonymous Anonymous said...

Dubai was never a regional hub. More PR crap and Dubai believing its own hollow hype.

04 November, 2008 16:13  
Anonymous Anonymous said...

Jeez, Emaar is laying off lots of people without even a notice, this really might be the sign of the times.

Brace yourself folks!

05 November, 2008 13:52  
Blogger ReMo said...

layoffs seem to be a standard word these days at master & seconday developers and construction companies.. so many rumors doing the rounds.. does anyone know for sure if these companies have laid off..
k.. rumours i've heard
nakheel - bankrupt!!! - laid off nearly 1200 staff..

damac - pretty bad shape - laid off nearly 100

emaar - no layoffs yet.. but lots of ppl are jittery..

large construction firms - asking people to go on extended unpaid vacations...

can anyone spread some light on this..

10 November, 2008 13:52  
Anonymous Anonymous said...

Ok so Dubai is no heaven? Who expected it to be? Are you aware of what is happening in the UK or US at the moment? The £ is at the lowest in a decade, property prices are crashing, unepmloyment is taking off, I mean things are pretty bleak..If you dont become redundant you just might be able to make the rising cost of your mortgage because banks are taking the p*ss. People are loosing their homes after missing 2 mortgage payments (yes 2).. That doesnt exactly sound fair to me..
So Etisalat has all the porn blocked boo hoo...

And as for Switzerland, I was there recently and I can tell you that yes its pristine but

a) A lot more expensive than Dubai and
b) Whats to do around Lake Geneva at 9pm on a Tuesday night? Well not much...cant even go out and buy a packet of crisps...

Is a blogg meant to focus on the negatives?

11 November, 2008 19:38  
Blogger Henry said...

Being in the first 10% both in and out would have seen you well. This goes for all investments. The most enjoyable part of Dubai is the trip to the airport. Sand, sand and more sodding sand.

13 November, 2008 23:41  
Anonymous Anonymous said...

REally informative blog for me as i am in Canada and just interested in watching happens there. Canada i think is the safest of any economy out there. We havent seen any major correction maybe 4% down but if you not an investor and living in your property you wouldnt even notice your neighbour has the property in market for $10,000 lower. But whats happening in Dubai is a massacre bank will merge or close as defaulter list grow.

15 November, 2008 12:42  
Anonymous Anonymous said...

It had to happen, 1 million pounds for a 4 bed villa in the middle of the desert is simply wrong! Not to mention the rental costs- 3-4 bed villas currently going for 50-60000 quid a year.

16 November, 2008 21:38  
Anonymous Anonymous said...

For all of you expats dreamin of a piece of Dubai or UAE and getting citizenship ... Dreeeeeeaaaam onnnnn ... or go back to toilets of India !!! hehehe

14 December, 2008 19:13  
Anonymous Dubai Property said...

sorry about this, but I think this was irresponsibly written. Organized crime? WHAT!?!

The fact remains that properties in Dubai have gotten more and more progressive, even with the US real estate market going down. It was not, and will not be affected by outside influences and remains to be the best investments anybody can buy

06 January, 2009 22:49  
Anonymous Anonymous said...

Wow, talk about having your head in the sand. The trouble has only just started. The quicker things go up the quicker they come down and nothing has gone up quicker than Dubai real estate.

15 January, 2009 04:25  
Anonymous sunil said...

not a surprise. what goes up must come down eventually. dubai has been long due for a price correction. this is just the start my friends. anyone who understands real estate fundamentals can see continuing trends for 24-36 months at the very least. look for abu dhabi to levelize shortly...

18 January, 2009 00:19  
Blogger ARR1058 said...

The Dubai bubble had actually burst (or had definitely sprung a leak) since late 2007. Of course the whole charade was kept going by the announcement of yet more mega projects and the opening of yet more mega malls and gazillion start hotels.

That there is money from organised crime going into the place has never been in any doubt. The real problem is that that the mafioso were hoping that mugs from Europe will keep falling for the hype and keep investing money in Dubai property. Well mugs from Europe are losing jobs and just about hanging on to their homes over here so fat chance of anyone having any spare cash to invest in Dubai. The place is doomed and i feel sorry for anyone who has money tied up over there.

24 January, 2009 03:24  
Blogger ARR1058 said...

The Dubai property bubble was beginning to burst (or at the very least had sprung a leak) since late 2007. It was the announcements of yet more "glamorous" gazillion dollar projects that kept it afloat for a while. Now the whole edifice is ready to crumble. That there has been money from organised crime involved in the whole shady project has never been in any doubt. The trouble is that the mafioso were banking on mugs from the western countries investing their hard earned euros,dollars and pounds in the project. Now that the mugs from the west are losing jobs all over the place and just about hanging on to their homes, the cash flow has dried up. I just feel sorry for anyone who already has money tied up in Dubai. Cut your losses and get out whilst you still can.

24 January, 2009 03:30  
Anonymous Terry said...

The Dubai International Property Show is on this weekend (15th-17th Feb). I'd love to be able to attend, just to hear all the insane b*llsh*t that the snake-oil-salesmen would be spouting to sell their sham investments. If anyone manages to go, please do post a report!

I will try to post something on dubaipropertycrash.com

My view of Dubai, having visited several times is as a great place to hang out for a few days, but to invest? I could never fully understand the fundamentals behind it. The hype reminded me of the hype surrounding the dotcom bubble back at the start of the millenium - it was meant to be a "new paradigm in investing", with fresh IT companies with zero earnings being ramped to a PE ratio of one quadrillion. It all ended in tears, just as this now has. The death spiral has just begun!

Perhaps also an element of karma? All those glittering developments at the expense of 'near-slaves' from india and pakistan. Reminds me of pharoahs and their pyramids

12 February, 2009 23:47  
Anonymous joyesmith said...

I also though to happen something like this earlier,but really disappointing information

24 February, 2010 14:42  

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