Recent discussion among most investors has been focusing on - what exactly is going on here in Dubai?
Several top real estate executives have recently been caught in a growing corruption scandal in Dubai. In comparison, the problems are quite small in the large and growing Dubai real estate market but have climbed ever so slowly every week. It appears that almost all individuals are involved in perhaps the same imbroglio.
The latest news on Thursday involved Dubai Islamic Bank once again wherein it's shares were suspended - briefly - on DFM and restarted trading once DIB clarified that it had indeed stepped in and foreclosed on a HUGE 20million Sq. ft. project in Dubailand called The Plantation.
Lest you get dejected, these problems are still small in a nascent and still developing market. A few companies do not constitute the entire market. And with the rapidly growing size of the population and excess demand for housing, the pent up demand alone is sufficient to allow the property values to continue to rise.
The investor to user ratio also has been steadily declining to approx. 70% investors and 30% users currently, according to reports, from a peak of over 95% investors.
The demand in real estate is mainly due to stricter regulations being introduced over the last year, inflow of foreign companies and accompanying funds, increasing interest from different set of investors from around the globe, the increasing number of banks willing to finance various projects and of course, increasing transparency.
The atrociously priced rents have also somehow supported the jump in sales of freehold properties until now, however, with rapidly climbing inflation and worsening savings potential, this may be a slight cause of concern going forward. Any dip in population or not fast enough rise in home prices (including off-plan properties) or inability to offload investor owned properties quickly may have a quick downward spiral effect in real estate prices. However, if anyone has held a property or properties for over 6 months (allowing prices to rise) this risk gets mitigated.
The recent downfall in DFM and ADSM markets due to lack of liquidity, developing global financial crisis across the globe and the corruption scandal is not helping investors.
We don't know yet how deep the troubles are or how far the stock markets may fall but it will be safe to presume that the enormous wealth being generated by oil inflows and the resultant expenditures by all GCC governments is leading to a wealth of opportunities for all and will make the stock markets rise again and continue to balance any negative headwinds in the real estate markets.
Just based on the last para above, I continue to remain overall positive on the growth potential, whether real estate or stocks, in all the markets comprising GCC and MENA region. One or few markets may be negative, but, when invested in all the markets via mutual funds to reduce risk, this region will be one of the best performing markets in the world over the next 2-3 years, at least after the global crisis comes to an end, sometime next year. My first post also strongly indicates that the Dubai Government is doing all it can to support the economy by protecting it (from grapevine talks as well as real physical dangers).
Do note that Cityscape Dubai 2008 will be on in about 3 weeks and prices of real estate in Dubai usually rise thereafter since new major projects are always announced therein.
Ramadan Kareem.
Well Manoj, I was optimistic after reading your comments. It is true demand here is high; let us hope that it stays that way. I would bet though, that if the market does soften a bit, then the luxury units would suffer more than the middle class ones?
ReplyDeleteEdward : )