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Dropp the Pilot
21st Dec 2008, 08:00
There was an interesting dialogue on this subject not too long ago. Would anyone like to start it up again by forecasting when it might be time to pick over the bones?

Property bargains fail to sell
Robert Ditcham

Last Updated: December 20. 2008 4:29PM UAE / GMT
The estate agents Engel and Volkers held a cut-price home sale in Dubai, but report that not one property changed hands. Courtesy Engel and Volkers
A Dubai-based estate agent slashed millions of dirhams from the value of homes in a 12-hour sell-off, but not one of the properties changed hands.

Last week, the Marina franchise of the international estate agency Engel and Volkers held what it called “the largest discounted sale of completed properties in Dubai” to breathe some life into its local business.

But the result was a sign of just how far the property market has reversed since the summer.

More than 150 homes in some of Dubai’s most exclusive addresses, including Emirates Hills, The Marina and the Palm Jumeirah, had a combined Dh175 million (US$48m) knocked off their original listing prices.

The company said it made contact with dozens of potential clients, many of whom indicated they would attend similar sell-offs in the future, but failed to sell any properties during the event.

“It was unfortunate, but it proves just how tough the market is at the moment. A lot of people were scared that prices would drop more,” said Harriet Killen, the office manager of Engel and Volkers’s Marina office, who added that December was traditionally a weak sales month since many residents left the country on holiday.

The situation was in stark contrast to scenes at this summer’s Abu Dhabi Cityscape Exhibition, when hundreds of investors queued for hours in the hope of putting their names down for properties.

“The market has been slow recently so we had to be active in generating some direct sales and some urgency,” said Ms Killen.

The company had urged sellers to drop their prices for a day to stimulate interest among potential buyers, knocking off between Dh500,000 and Dh1m from the prices of many properties.

A large number of the current owners of the discounted properties are making payments on assets that are sinking in value.

Many in their position have sold their homes to ease cash flow problems or to re-invest in other markets.

Most have already witnessed a huge appreciation in their homes since they first bought them and are generally content to take a hit on their margins.

During the event last Saturday, prospective buyers were invited to a 12-hour sell-off starting at 9.30am in which the public could meet the company’s sales and leasing agents. A local mortgage company was also on hand to arrange financing for potential clients.

Obtaining a mortgage is another stumbling block for would-be buyers. Banks and finance houses have tightened their lending criteria as the worldwide credit crisis deepens.

One lender, Amlak, has suspended new loan applications and others are demanding larger deposits.

Estate agents have said the shifting property market might have a positive effect, “cleansing” the business and raising standards in the industry.

There have already been hundreds of redundancies among brokerages and property developers, in some cases predominately support staff.

Quaid Abbas, an executive property consultant at the Sheikh Zayed Road branch of Engel and Volkers, described a typical discounted property as a villa in Arabian Ranches that sold initially for Dh2.5m, reached Dh7m as the market gained, and advertised for Dh6m in today’s market.

“We’re getting more listings than buyers. More people are selling than buying. Buyers are looking for a very good bargain and we cannot always meet their expectations. In their minds they want to buy at less than half of what it was.”



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bigmountain
21st Dec 2008, 21:22
My thoughts about the Property market

What ever the reason . The brakes or shall we say the spiral in the property market was very much needed if not expected. People were just going crazy with putting deposits on offplan properties and selling at a premimum ( flipping ) on a short term basis. It seemed that the speculators from the stock market had abandoned their speculative activities and turned to property as a commodity that they could trade ,sometimes realizing over 100% gains in a short period of time. "Without any central credit rating system" , individuals were able to finance a number of properties without any proper screening of their eligibility criteria.

The Global fianancial crisis has served to indirectly put the brakes on this negative activity. The UAE banks have subsequently resorted to tighter lending criteria and thus eliminating quite a few eligible end users who were willing to pay a premimum to the flippers /.speculators /devious chain agents .
Now we have moved to the other extreme where Mortgage finance criteria has become tough resulting in a steep decline in genuine buyers , resulting in a decline in demand for real estate and therefore a withdrawal ,for the time being in speculative- pre launch bookings. Along with the media hype of job losses and a general insecurity about the ability of Dubai meeting its financial obligations / burden, the steep decline in the Oil prices have led the public to a mood of negative sentiment.
This negative vibe has continued in the stock market and in the property market impacting the common man as well as the big investor ; whether he may be invested in the Stock market , Real Estate or the Constuction sector.
A lot of the big names like Nakheel and Emaar along with smaller private developers have had to revisit some of their expansion plans and the media has played this up a lot , much to the dismay of the public.This has in turn resulted in some distressed stories of layoffs in the Banking and the Real Estate and Construction sectors and consequent panic selling of property.Banks who had a high exposure towards the Real Estate sector saw their balance sheets show red , resulting in generally a credit squeeze.

We will now have to wait for another catalyst for the ball to start rolling and put a positive spin in the new year.

I'm personally bullish on property in the long term . The market was outperforming the traditional equity markets and attracted a lot of novices and non end users resulting in speculative rise in the property market.
Hopefully lessons will be learned . Banks will again start lending with more sensible lending criteria , and also the rates and terms for the mortgages will be more reasonable , while the cost of construction has also come down. This will allow genuine buyers into the market and provide long term growth opportunity and move to more realistic pricing levels.
For those property currently coming on line , there will be an increase in demand for rentals and property should be leased fairly easily.. Obvioulsy the better quality product will be able to move quicker and will be able to command a higher rental. All property coming on line should be able to return greater than 10% returns based on the original price . Those who have bought on resale will have to be content with returns similar to Europe at returns of 5-6% Enough to cover the mortgage.

For those who are "Cash Rich" and have the instincts similar to Warren Buffett, there are opportunites to be had . But I hasten to add; must have the risk tolerance and patience , the confidence and the resileince of Dubai overcoming this Global Crisis. We hear dire stories of the Great Depression , and I'm sure the Wall Street Moguls are taking a good look at their money makiong model and I'm sure the local Dubai folk are also looking a theirs.

Past experience has shown that Dubai has always been quick to adapt and turn a liabilty to an opportunity. I'm sure this will hold true in the case of the current crisis as well

BM

Schnowzer
22nd Dec 2008, 01:52
If Engel and Volkers had cut their price in half they would still have been above some of the prices achieved by other sellers even at the height of the boom. They always seemed to have the $12m des res when the same house was being sold by ALi Al Seller for 6 so no suprises there. There is a little movement in the market at about 20% discount or from distress sales at places like Victory Heights and the Villa. WOuldn't want to have too many apartments though, rumours of multi-million losses from within the pilot community.

BigGeordie
22nd Dec 2008, 06:57
I pretty much agree with everything bigmountain said.

To me it looks like anything off plan is basically unsellable (is that a word?) at the moment. People are just too nervous to put money down on something that may not be ready for months or years. Similarly, anything tatty (some of the early Springs and Meadows villas that have been rented out for years come into this category) or in a poor location has lost a load of value from the peak.

The units that had rocketed up in value beyond reason (Palm Villas, Green Community West bungalows/villas) have also been hit be losses of up to 50%.

The good news seems to be that nice properties in good locations have "only" lost about 20% or so of their value from the peak- bearing in mind they had gone up by about 80% in the 12 months before that.

There are still cash buyers out there, and people who meet the new lending criteria for a mortgage so the market isn't completely dead. What isn't helping is sellers who still think they can get what they would have 6 months ago, or only 10% less, and buyers who think everything should be half price. There needs to be a reality check on both sides.

My tip for a bargain, if you have cash, would be to try and find an off plan property where the final payment or two are coming due to the developer and the present owner just doesn't have the money. There are lots of people out there who are sitting on five or six properties which the planned to flip just before completion, before the final payment. The best euphemism I've seen in the paper is "motivated seller".

Like bigmountain, I'm looking forward to a more stable and sustainable property market in 2009. Anybody taking a long term (5-10 years) view and with realistic expectations will still be able to get a good return.

Trader
22nd Dec 2008, 10:01
I would think that with the speculators gone the number of sales will never reach their prior heights. It will take a while for the market to rationalize and I don't think any one knows what number of units that will/should be.

I know that if i could buy a 4 bedroom villa for $500,000 US or less I would seriously consider it. That is my first step. Above that I will just stay in EK housing since the downpayment and risk in this part of the world along with the interest rates are just too great. I am better off buying and renting in almost any other major city at prices above that.

The next consideration is the operating costs of buying a home. DEWA is getting very pricey and I know a few people averaging 4-5000dhms a month in their DEWA bills.

Finally you look at the servicing costs and those keep changing (going up naturally). Paying 100,000 dhms a year in maintenance/service etc is ridiculous and, my guess, these fees will continue to climb as developers/property companies look at other means of 'profit'!!!! Or worse the 'rules' will change and the fees will increase (despite a contract) or the quality will disappear (what there is of it any way).

Finally, the overall build quality is poor here.

So, imo, the only reason for most people to buy is to take advantage of the housing allowance they are given. Ideally, your allowance would cover the mortgage and all the costs. If this is the case then it is a no brainer. But at current levels, for most people, this is not even close to being true.

So the question becomes at what point does it still make sense to buy? The gap between allowance and cost is huge and unless it closes significantly I won't be buying and I don't think many others will be either.

For rental the calculation is a bit easier. What can you buy, what are the operating costs. If the income is greater than the costs then it makes sense. Even considering that I don't think anyone has a good idea of what is happening in Dubai at the moment so the risk is still high.

So the risk and cost for most people is far to high. That means a very stagnant market.

40&80
23rd Dec 2008, 16:46
Good sound logic on DXB property clearly explained Trader.
I never invested in Gulf property as there are no property laws or protection for expats and I suspected it all another giant PONZI deck of cards...bit like the UK banking system and governmet appear now.
I also read a $175K (2006 property) in the USA was this week sold for $62K....disaster appears to be everywhere.
Retired in the UK and living on interest from Arabian Gulf savings is for me a similarly desperate situation with the present interest rates.
All in all it seems to me that maybe we should all be buying gold and big cap shares for yield the likes of Tesco, BAT, Vodaphone, and BP.
My sterling in any UK bank now seems too high risk... at these new low interest rates...and I notice the UK government and Qatar get 12.5% and 16% on theirs from these same UK banks.
If you had £1 million of sterling and needed income where would you place it Trader?

mkdar
23rd Dec 2008, 20:01
A manager of some investment portfolio in the states said : it’s too late to sell, too early to buy.
He was talking about the United States real estate situation.
I believe that it applies just as accurately to Dubai.:ok:

MDT06
23rd Dec 2008, 21:23
It is too early to buy. Just look at the US, where properties are not close to the bottom. When the meltdown started to happen, must people believe it was going to last 1 year, then 06, 07, 08 came and we still don't see a bottom? Every month the recovery gets revised and the common knowledge is 2010, but who really knows.....NO ONE. We could all take a guess based on what we know....but it is just getting uglier here. Look at the property in the link below...This is in California…..Nevada and Florida are about the same in many areas and the majority of homeowners are in denial. Be careful if you think it won't keep going down, and of course, many will say that Dubai is different....but remember economic principles are the same no matter where you are.

61 Dowitcher Ct, Oakley, CA 94561 - Zillow Real Estate (http://www.zillow.com/homedetails/61-Dowitcher-Ct-Oakley-CA-94561/72554584_zpid/)

MDT

Trader
24th Dec 2008, 06:23
40&80.......I don't have that problem unfortunately :) However, it is a tricky time now and ut really calls for an advisor you trust!!!!

Good quality corp bonds are always a good bet. With interest rates already low the risk is that you lose on the bond price itself as rates rise at some point in the future. It really does take a good advisor to spread that risk around and make sure you have enough to live off of. That combination of investments is unique to each individual!!!

The good news for you is that hopefully you made good returns during teh good years and were out of the 'market' for the crash :)