THE COMING DUBAI BUST
The Great Dubai Crash of 2008-2009
Dubai real estate values will fall far more in the next 3 years than USA values than USA or GB values have dropped in the current sub-prime crunch. Further, they stand far less of a chance of coming back to present levels in our lifetime.
Why?
Because around half of the homes and apartments in Dubai have been “sold” to speculators who would never dream of living in them, but expect to flip them for big profits. They were in fact able to flip deals they bought “off plan-pre-build” for the last few years. But when too may people buy to flip, there is no one left to flip to. Sales have virtually dried up in the past two weeks. Panics can arise out of nowhere and destroy seemingly healthy businesses overnight. Compare with Bear Stearns.
With no end users in sight for all those offices, homes and apartments, all it takes is a few negative rumors & scandals to dry up speculative buying …It has already started. So far the regular media is not mentioning it. When the speculators all rush for the exits at the same time, the “investors” follow . Then banks and lenders are left holding the bag. As Dubai & International Banks in Dubai have made far too many “sub-prime” & “equity release” loans of 100% and more on many properties, it will be a near empty bag. With half or more of all the properties expected by me to be in foreclosure, it is difficult to see any other outcome than an abrupt end to the present construction boom. Then what? A big depression, & a massive exodus from Dubai.
Is this 100% sure? No! Nothing is sure. Something unexpected could change things. The rulers of Dubai might be able to pull a cat out the hat. There is one bright spot: The local Dubai banks & stockbrokers have been doing well managing the money of wealthy Arabs and handling many financial transactions. But their bad bets on real estate and their need for new employees is a drop in the bucket compared to the looming defaults.
Dubai has gone from a population of a few thousand natives a few years ago. They now have infinitely more commercial and residential space under construction than they could conceivably fill. The city is mostly half vacant apartment buildings –housing for 2 million expats, but they are not coming so much any more.. They supposedly have 25% of all the building cranes in the world set in place for new projects. In a word, they are grossly overbuilt and are continuing to overbuild in the face of slackening demand. The grandiose projects, “attractions” and amusement parks built or under construction are doomed to failure. They will be as empty as similar projects built a few years back in Brunei. Why?
Dubai is one of the most unwelcoming, expensive, unpleasant, uncultured places in the world to live.
Dubai won’t grant citizenship & passports to expats no matter how long they live there, legally or otherwise. The climate is unpleasantly hot to put it mildly! It is always so hot you can fry eggs on the sidewalk.
Local “justice” is badly skewed against foreigners.
Cracks are appearing in the whole economic structure as it is revealed that some residential projects that have been partially sold “off plan” will never be built. Deposits can’t be returned because the money has “disappeared.” In a Muslim country it is very easy to see that Christians will be the scapegoats to blame for whatever goes wrong. Would you take a chance at having your right hand amputated? That would be the punishment for being involved in “misplacing” the money of the wealthy local speculators.
No one in their right mind would choose to really live in Dubai without the opportunity to make a fast buck. For PTs who could find ways to profit from all the frenetic activity but were/are ready to move on, it was a fine place for the last few years. But the building boom will probably unravel this year. Even with no income tax, there is not enough there to attract as many wealthy permanent residents, workers, retirees, and an ever growing new population they need to keep it dynamic.
Dubai won’t disappear, but this will be a setback for the country. A lot of investors will get burned. Opportunity for some may be in picking up distressed homes or buildings at a tiny % of building cost. Unfinished buildings may be acquired for a song. Hi-rise apartments are more dangerous at any price. Why? When other tenants [or vacant units] in a condo won’t pay their share for upkeep, the ones remaining will be stuck with the bill –or no maintenance will be done at all.
Well guys, I could write a book on the subject, but just remember you heard it here first.
Gramps
BONUS: A comment from a friend:
I have to agree with you on this … I’ve long thought that Dubai, and to a lesser extent some other rapidly developing Middle Eastern states, have been placing far too much reliance on property growth without
anything fundamental to underpin it. Once the global economic situation worsens, which it will inevitably do, many investors in overseas property will be forced to retrench, which will mean selling at a substantial loss because of the already massive over-supply you mentioned.
The countries which will be affected to a far lesser extent will be those which have been far-sighted enough to diversify their economies into many different fields, not just property and tourism.
Although I’ve not been for a while, from what I hear from several very recent visitors, Dubai is now one over-developed high-rise hell, with massive pollution, noise, traffic problems and no sense of
community. A friend who lives about 15 km from the airport missed his flight to London a couple of weeks ago because it took him almost 2 hours to make the trip. Traffic was that bad; far worse than driving from central London out to Heathrow — and that’s saying something!
I also hear rumours that sales of development plots in “The World” have completely stalled and that there are substantial discounts on offer for unsold or resale properties in all “The Palm” developments.
The property market here in the UK hasn’t (yet) been affected to anywhere near the extent to which many believe. On average prices have only dropped by a couple of percent, and given the 150%+ rises over the last few years, this is insignificant, however as in Dubai the buy to let market has been severely affected with something like 30% of all new builds in many cities still standing empty and forced sale values down by 30/40%. This doesn’t reflect the true residential housing market though as many of these
properties, largely apartments, were originally way over-priced for the investment potential they were supposed to reflect.
It’s going to be a major economic blow to many Brits who have jeopardized their own homes because of high borrowing levels. They “invested” in Dubai. Now, where their apartments could be rented at all, they are getting much lower than expected rental returns. Thus they can’t service the loans on their own homes in England.
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