There’s no getting away from this international ‘credit crisis’ is there? And in our opinion this widely used term is actually being used to describe a global recession! Who would have thought that the once impenetrably successful emirate of Dubai could be affected by anything like a downturn in its property or jobs market – but as the evil tentacles of financial meltdown creep ever closer to the Middle Eastern region now too, so Dubai property prices are falling fast as the credit crisis leaves its mark!
Many believe that markets like Dubai’s which have boomed so fast have to fall at least a little way to become realistically priced – but what was ever realistic about Dubai’s property boom anyway? What was realistic and practical and sensible about building offshore islands in the shape of countries of the world, what was realistic, practical and sensible about building the biggest, brashest, most expensive and luxurious real estate in project after project?
Dubai was not built on ‘realistic’ – and yet realistic is what the emirate’s developers and property investors are now having to be if they want to shift any of their overblown stock as reports indicate that property prices in Dubai have fallen by up to 45%!
According to Arabian Business, completed three and four bedroom villa homes on the Jumeirah Islands and Jumeirah Park developments are being reduced by up to 45% as desperate speculators attempt to consolidate and get out of a market that they were hoping would reap them quick and easy, high returns. One investor, speaking to CBS News, likened the change in the market in Dubai to someone ‘throwing a switch’ – so quickly have things changed in Dubai. The emirate was effectively the largest construction site in the world – well, it still is – but it was growing and booming, expanding and growing as more and more bought into the perhaps unrealistic dream that Dubai’s market could defy the basics of supply and demand and affordability.
Now that reality is beginning to bite in Dubai, investors who were less aware of the risks they were taking are now having to face up to the fact that they need to cut and run or risk losing everything. One of the main ways Dubai fuelled its ever increasing property prices was through advertising potential returns to investors by saying ‘put X amount down today, flip your property and reap up to X amount of profit.’ So, buyers were coming to the market, putting a low deposit down, shouldering a massive debt with confidence that they would quickly offload the unit before the debt became payable. Unfortunately, as jobs in the emirate are getting fewer, mortgages and credit are becoming scarce and new buyers scarcer still, those who have massive debt burdens on properties they never intended living in are finding that banks and developers are calling time on their loans and asking for them to be repaid. This is leaving many with no choice but to sell at any cost to get out – even if that means making no profit and breaking even, or making a loss.
Naturally this means that property prices are falling to wherever they need to fall to in order for homes to sell. This is fantastic news for anyone who thought the days of finding a bargain in Dubai were long gone – but it is bad news for the underlying property economy. However, there is some light at the end of the tunnel – this period of massive readjustment could be just what Dubai’s housing market needs if it ever wants to be taken seriously. After all, how could anyone take a property market seriously where one day a property could rise in value by as much as 20%? Only when a market is built on solid, serious, tangible and realistic, (that word again), fundamentals can it have a long-term and healthy future.
We cannot see that falling Dubai property prices are a bad thing for the overall economy – and the global recession could in fact be a good thing for an over blown market like Dubai where everyone was getting fat from the land with no consideration being given to sustainability, affordability or even the environment. Let’s hope that this period of consolidation that will inevitably follow in the UAE will make people less greedy for profit, and more interested in the long-term sustainability of any approach to development.