Dubai Property Prices continue their fall: Research from Landmark Properties

Dubai Property Prices May Fall Up to 50 Per Cent: Research

Finally, there is some research that seems quite on the spot. Read this article here from Khaleej Times, a local English newspaper based on a research report from Landmark Properties.

There is actually fear in the market with many job losses (estimated between 8-10,000 within Dec and Jan 2009), lack of project as well as mortgage finance, almost no retail level sales except in well developed areas, very low new employment visas, currency fluctuations in UK, Europe, India, Russia and elsewhere, real estate & stock downturns in all countries, slowing international trade, lower margins, falling tourism etc. Many new projects have been put on hold which was obviously expected.

People who have lost jobs are forced to sell their furniture, cars and homes since they need to leave Dubai within 30 days. The Govt is working on a resolution to this strict rule. Additionally, Dubai Govt has increased budgeted spending for 2009 by 42%. Across GCC, over USD 2 trillion will be spent on various infrastructure projects in the coming 5 years as per published research reports. While, continued saving from oil revenues of various Gulf states continue to remain invested in the Gulf region and provide some buffer from the downturn.

However, people who are able to re-enter or stay in the country even without a residence visa, for example, from US, UK, European countries etc who are allowed 60 days visit visa upon arrival at the airport, are also in a very tough situation due to lack of job opportunities and extremely high cost of living which is unable to support their lavish lifestyles.

Most people due to their high earnings, not only turned into speculators but spent most of their incomes on flashy cars, flashy bars and flashy apartments filled with consumer items. With no new entrants to the labour market and many people losing jobs, the retail sales in the malls have also dropped considerably. With 3 major malls opening in the past 4 months, it has been harded than ever to survive for the retail stores too. Dubai Mall opened in Nov, followed by The Walk in Jumeirah Beach Residence and Marina Mall in Dec. With so many new stores at extremely high rents, it is quite challenging for all the stores since most stores just duplicate their presence and have same stores in almost all malls across Dubai.

I believe banks, who are the largest employer in the region and the city, similar to Govt, will have lower revenues and profits during 2009, Govt will see revenues declining from customs, airport fees due to declining international trade and slow tourism growth. Other entities will have to rethink their growth strategies and forced to reduce salary and other fixed costs by removing employees.

Some of the benefits will be lower cost of living, lower traffic congestion (combined with new metro opening in Sep 2009), better customer service in retail stores, hotels, restaurants, malls etc.

Unfortunately, for the speculators, the real estate prices will continue to decline and reduce their wealth to the extent leveraged and invested in the, thus far, booming real estate market.

The speculators, unlike real users, made lots of money due to their 'connections' in the property sector, developers happily played along, but in the current scenario both the speculator and developer are under tremendous pressure and many of them will lose lots of money just the way they made lots of money previously because leverage works both ways. I am sure many developers must be thinking why they did not sell most of their properties to end users who would have stabilised the market, but alas, it is now too late to think that way! The chickens have already come home to roost!

An interesting Youtube video is here from CBS news of USA

02 February 2009
DUBAI - Prices of residential and commercial property in Dubai are predicted to plunge this year by up to 50 per cent and 40 per cent respectively as the real estate market reels under pressures of a correction sparked by weak demand, findings by a new market research show.

Residential rents of both apartments and villas are also forecast to drop by 25 per cent while commercial rents are poised "to fare even worse," according to the report by Landmark Advisory, the research wing of a Dubai-based property company.

"Apartment prices will fall on an average by 20 per cent, with individual declines ranging between 10 and 50 per cent depending on the development. Average villa prices are likely to remain relatively stable with up to 10 per cent average drop with lower quality units bearing the brunt of these declines," the report said. Villa rents are expected to fall on average by 25 per cent with low quality units hardest hit.

According to the report, residential prices peaked in October 2008, fell through to December, and continue to fall. "Assuming that the current downturn will affect prices in line with historical average of 35.5 per cent, then Dubai's average price floor will fall from a peak Dh1,556 to Dh1,000 per square foot."

Office sale prices are predicted to drop 35-40 per cent due to corporate downsizing as companies consolidate their offices to reduce overhead, the report said. Land prices that fell significantly in 2008 will fall by up to 50 per cent. While warehouse prices are likely to increase 30-40 per cent due to undersupply and untapped leasing potential, rents will rise by 10 per cent."

Another steep fall, the report said, will be in the case of labour camps. Prices will fall by 30-40 per cent while rents are head for up to 35 per cent fall as construction contract volumes plummet by 75 per cent.

Landmark's forecast is in line with those made by Global Investment House. Noting that properties in the secondary market have fallen as deep as 40 per cent, Global said: "Looking ahead in 2009, we expect to see further price correction for freehold properties in the range of 15-30 per cent, however, and rents to decline by 15-25 per cent in 2009 due the lack of demand in line with the economic slowdown which forced many Dubai firms to downsize or halt their expansion plans which will likely result in a decline in the number of expatriates in Dubai.

The Landmark report notes that during the transition from a supply-driven property market to a demand-driven one, prices are no longer dictated by developers. "In the year ahead, consumer preferences, access to capital, and income levels will reshape demand patterns and redefine the market. As new supply encounters slowing demand, the market will reward developers who deliver quality and punish who do not."

The report said the average income levels in Dubai were likely to stagnate due to redundancies and lower salaries. "The financial crisis has slowed demand: personal incomes, job security, and confidence are declining. An improvement of confidence among banks and investors will be the critical first step towards the recovery of the property market. Despite special access to government funds, banks have reverted to austere lending practices that restrict the availability of much-needed capital. The availability of financing will be critical factor for boosting the economy and rehabilitating real estate transaction volumes. Until the recovery of the property market, developers, investors, and landlords must adapt flexible and innovative approach to survive," it said.

By Issac John

© Khaleej Times 2009