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30 percent deposit

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30 percent deposit

Old 30th Oct 2008, 07:44
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30 percent deposit

FYI : The central bank UAE has recommended that all banks only issue mortgages based on a 30 percent deposit, many banks are now following this advice!
Stand back and watch what this does to the market guys, another knee jerk reaction to world wide events.
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Old 30th Oct 2008, 08:13
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Kneejerk?

If only, if only....

Before this is finished some of you are going to have to start reading the Economist instead of the billboards and the Gulf News puff-pieces.
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Old 30th Oct 2008, 09:50
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... so based on a 7 million dirham villa just 2.1 million needed for the deposit.

Lloyds will not give mortgages on some projects at all.

Supply at the bottom is being cut off so the rise of the CB that was the property market will dissipate at a equally high rate, fluctuate then perhaps just perhaps settle at something that resembles reality.

There are much better investments to be had elsewhere hence the smart money is moving away from the UAE.
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Old 30th Oct 2008, 11:55
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Marooned

You are quite right, anyone who is not a national who spends big money here in UAE or indeed elsewhere in the Gulf

need a severe talking to

Saty well clear, markets change here rapidly but so do the LAWS

S.L.
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Old 30th Oct 2008, 12:20
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Hmmm... I agree that prices are over inflated but even if prices drop 40 percent and villas drop from 7 million to a realistic price, who will be able to afford the average 1.5 million deposit for a villa or 700K for an apartment. maybe 30 percent deposit should have beeen introduced for non resident purchases and UAE residents reduced to a consevative 80/85 percent.
So when the banks have zero property sales in the following months,do you really think they will sit back and lose all that juicy sales commision!
As said laws come and go at a drop of a hat in the sandbox, lets see what surprises are in store for us next.
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Old 30th Oct 2008, 12:44
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Compared with the billion dollar losses elsewhere any would be commissions would be a drop in the ocean. Some banks may even pull out of the mortgage market completely.

Banks outside the UAE are consolidating and in no mood for taking any unnecessary risks on top of those already made. As for those inside, they rely on the reserve bank to provide the liquidity needed for loans. The problem is that they are aware that the market has way overheated and that the short term speculation in the market has damaged the desired sustainable long term growth. I don't think they want to add more fuel to the fire either.

Further growth at the current rate only suits the speculators not the government or anyone else.
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Old 30th Oct 2008, 16:02
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Also the decrease in value of euro and pound will inrease cost of property by 20/25%. This will also mean less visitors in hotels etc.
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Old 30th Oct 2008, 19:26
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Etihad Rent To Buy!!!!!! Lol!!!
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Old 30th Oct 2008, 21:30
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Mmmmmm, I agree that this liquidity crisis will affect the property market, however, if I may offer a slightly different slant on matters......

There is nothing wrong with the property market in Dubai.....it is ruled by supply and demand and like any other and this crisis is a threat to supply....which translates directly into increased yields(ie rents). This will attract capital no matter what.

Please don't get me wrong....I am not saying that this crisis will not hurt Dubai. I am simply pointing out that compared to the UK or US where a sick market caused the choas, here the crisis is affecting a healthy market. Big difference.

Bottom line is that I think the coming months will see some panic selling plus distressed sales of people unable to meet 2nd(or3rd) installments of 15% who had planned to sell before payment was due(read speculators) and this is going to lead to some excellent bargains for those that can raise the 30% deposit.

As a side note, I have a theory that this is going to cause a shift of interest to places like Ajman where developers are offering attractive payment plans. The need for housing is as great as ever and needs to be fulfilled. Comments?
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Old 30th Oct 2008, 22:02
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How do people afford these mortgages using the housing allowance? All the properties I have looked at, seem to be on plan which require installments of around 10% up until completion. So you would be using your housing allowance to pay a mortgage on a house, that you do not live in and will be built in a few years, which means you need to rent somewhere else in the mean time?
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Old 31st Oct 2008, 00:23
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Roll over, some mortgages don't require any repayments until the property is completed. Of course, you are still racking up interest during that time and that all has to be paid in one hit upon completion, but at least it gives you a chance to do a bit of saving.
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Old 31st Oct 2008, 01:32
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Ure Highness............

Kennytheking,

And all of u who agree with his Highness,....

As a mortal and with the knowledge that it will only hurt me
unlike the rich..

What we all are witnessing today is a different ballgame altogether ("regarding the economy"), beyond our imagination...

1, 2 or 10 trillion $ will not be enough to temper the current stream.
IT WILL ONLY ACCELERATE.

One has to find his/her save haven and I tell u its not the villa of 7 going for 3mil......

Btw ure housing allowance is only an ALLOWANCE .......dont count on it.

God luck to all of us in finding it...
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Old 31st Oct 2008, 05:04
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Got to say I agree with Kenny..... And I just got offered 85% by ADCB...
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Old 31st Oct 2008, 06:00
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A healthy market......ummmmmm is this a joke?

Men of Camelot....king and knight....

Be VERY careful about your advice here. To say that Dubai was or is a 'healthy market' borders on insanity. Debt here now exceeds GDP and enough about cash buyers, everything here like everywhere else, was heavily leveraged. One might still be able to secure a mortgage here and there, but honestly, why? Can you really justify spending millions on a substandard concrete block in the desert? The only thing that is going to stave off major, major pain in Dubai is some big bucks from up the road. This can, and likely will happen. We will never be the wiser for it.

Supply and demand are an artificially maintained concept here. Units held back, delays on projects etc. etc. The latest ruling of 'one dwelling, one family' just reeks of desperation here to artificially manipulate the demand side of things. But this mandate will only serve to add fuel to the fire as these folks cannot afford mortgage, rent, their only choice is to go home. Sadly, as we are now seeing globally, you can only muck with the markets so long before the unwieldly beast takes a turn for the worse. The market always wins. Companies are relocating, people are losing their jobs, and the economy is hurting here as well. This is just the beginning and the downturn has just begun. No where is immune to this.

Granted, there was a time when buyers made off like bandits but those days are long gone. My only hope is that the correction here is mild for those that have invested in property. Unless you really need to put a roof over your head, be smart, hang onto your cash and perhaps you could buy something with some real value....like lakeside in the mountains, a proper view, and hey, maybe you will be lucky enough to have reliable sewage treatment and less traffic. What a concept!
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Old 31st Oct 2008, 06:35
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I find that when people take potshot at my nick(I won't mention names), its generally because they have little else to contribute by way of rational debate. It came about as the result of a private joke several years ago and now I am stuck with it, so lets leave it at that.

Now, your point about this being a different ballgame altogether is taken, however, if I may point out that property has always been a safe-haven and will continue to do so for the forseeable future(even your money in the bank is not safe these days).

As stated before, when lending tightens, the market will feel it, however, I think the impact will be muted. UAE has a very low mortgage-to-GDP ratio of approx 8%(Dubai alone a bit higher) which is very favourable compared to the rest of the world which pushes anywhere up to 70% in some highly developed countries. This is partly the reason why hiking interest rates to control inflation would be ineffective.

Furthermore, there are only a few developments that can be mortgaged to over 85%. Also, show me a bank that will do an equity release mortgage of more that 75%.

The speculators in the market are gonna hurt, but there is an insatiable rental demand and the supply side has just had the carpet pulled from under its feet.
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Old 31st Oct 2008, 06:51
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Craig,

Just saw your post.......

Firstly, this is not a joke or insanity.....or is that the way you treat every opinion that dissents from yours?

Secondly, please can you point me in the direction of your source that says the debt here is more than GDP?

Thirdly, your opinion about substandard concrete in the desert, I think, misses the point of investment. While the standard is always a concern, what is more important is what level of rental income the place will deliver. As much as I would love a place in the mountains, no-one is going to pay me big bucks to rent it from me.

People always focus on the capital growth of their investments and while this is a factor, there are many risks to your investment including the risk that you will not get paid an annual return. The fact is that UAE is one of the most landlord friendly countries in the world. When last did you have to spend 3 months in court trying to evict a tenant for non-payment in the UAE.

Cheers
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Old 31st Oct 2008, 09:28
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Economic gurus

"I haven't got a lot of faith in the ecconomic gurus here."

...gurus plucked from the offices of Lehman Brothers, Morgan Stanley and such likes. These Wall Street or London City guys should get credit for some of the screw ups too.
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Old 31st Oct 2008, 12:09
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Sources re: GDP

Kennytheking,

I am very open to differing opinions, however, when facts are so clearly skewed in the opposite direction, I would tend to call them insanity.

As for facts regarding GDP, I have included a few links stating as such. You may refute these, not lending credibility to the sources, however, where freedom of the press is considered, obviously one has to seek information from external sources. I would tend to view these with an open mind, knowing full well that these lead to bias as well, but better than mindless glowing reports of economic growth in the region that are drawing on old information (before the crisis hit).
GDP Article
http://www.bloomberg.com/apps/news?pid=20601110&sid=a4sAgqSD_LIA

GDP and Tightening of Sovereign Wealth Funds
http://www.nytimes.com/2008/10/14/business/worldbusiness/14wealth.html?scp=89&sq=Dubai&st=nyt

Dubai Bankers anxiety
http://www.nytimes.com/2008/10/24/business/24views.html?_r=1&scp=45&sq=Dubai&st=nyt&oref=slogin

Also, the facts are becoming clear with the regular man on the street....you don't have to look much beyond colleagues and friends and what they are starting to experience to realize that the tide is shifting and investing in property is, perhaps, not the prudent move at this point.

A few examples...
  • real estate agents formerly working on a salary+commission package have now been told they are working on commission only
  • Nakheel has recently 'made redundant' at least half of their environment team (incredibly there was one)
  • Construction is grinding to a halt. Tons of reinforcing steel rebar is sitting unclaimed at Jebel Ali and Rashid Ports
  • Construction related equipment rental firms, formerly struggling to keep up with demand, now have warehouses full of unused equipment
  • A major luxury car manufacturer is shutting down Dubai operations to relocate to Turkey (cannot afford to keep staff in place in Dubai)
  • Some legal firms in Dubai are super busy recruiting, in what area of law....solvency!
As for being offered 85% financing, watch yourself. This can easily be changed midstream to suit the bank once you're so far into the process that you cannot get your deposit back from the developer and are now on the hook or stand to lose your outlay. Yes, this is happening.

Eventually, and sooner rather than later, the property market has to adjust....the fundamentals just aren't adding up.
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Old 31st Oct 2008, 12:21
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You can also look at it from a much more basic point of view. Who can afford property here? The average pilot can not afford to buy a villa for him and his family. At 2 million dhms or more you eat a huge amount of your income making payments.

Affordability always becomes the issue and that is what is happening here and at all income levels. The unskilled labour is leaving because pay and conditions on the Subcontinent are better than Dubai. The semi-skilled labour is leaving even faster- most are Indians whose skills are better rewarded at home.

If we at our incomes cannot afford a home (reasonably anyway) then that is the first indicator that we are in a bubble.

Finally, in any investment you look at the risk/reward ratio. It is now highly risky to invest in Dubai property while the potential payoff is low. The only exception I think would be if you have a highly desirable rental property in which case you likely don't worry much about price flucuations and are more concerned about the income it provides. I say desirable because I see lots of empty apartments around despite what they say about low supply and you have no income if you can't rent it, or worse, if you can't rent ot for what you thought you could.
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Old 31st Oct 2008, 12:51
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Most probably this crisis will lead to a market correction. But - so what? It was blown out of proportion and will come back to some sort of reality. This should calm down the real investor and scare away the speculator, something you'd like to happen if you're a home owner.
At the moment the spectre of correction sets in with a loss of 15 - 20% already, thus the gloomy comments. It's composed of the ~11% interest on personal loan and ~7% of mortgage rate all the low profile speculators have to fork out for their investments. If the downfall exceeds this percentage, they'll be forced to give it up. Now what do you think will happen? Already now there are so many appartments up for panic sale, that there are not enough free to rent and the rents go up. This in turn might trigger some of the panicers to rent because there's no market for a sale. At the same time not many want or are able to get a mortgage for a home, the banks will sooner or later have to rethink rate and conditions or lose that business. As a estimated 80% of landlords are locals, the pressure on the govt will increase to adjust conditions as not to lose tenders or buyers. The contractors try to shelve workers, they're scarce anyway, and to defer the backlog as to have work for more years and the promotors are quite happy not having to pay the construction at the moment, as there are not that many buyers off the shelf. Rents are so high that some companies opt out of Dubai, the economical turn around might diminish and with it tourism as long as the municipality consideres shit on the beech as Allahs will. The whole conjucture will slow down and exerce huge pressure on the gvmt to better the overall conditions.

Now what was i describing? - An econmical cycle. We witnessed such a cycle, due to other circumstances, in 97 in HKG. The same predictions about crashes, corrections etc. etc. were published then. But eventually the situation calmed down and was back to almost normal within 5 years.
Go back in history and you will see that any downturn was followed by the reverse. Why should it be different now? If you have some stamina, an investment even in Dubai will turn out as good as another. Nothing is ever sooooo special, not our time, our generation, our crisis and certainly not Dubai and the UAE.
I think the 30% own participation to real estate is not a bad idea at the moment. It will be softened, sure enough, but you need to get the small speculator out of the business, the one who borrows every dirham on one side to invest in another. This was one reason for the collapse in the states. This kind of investment is not sound. It will also inhibit the fast buying and selling with profit taking as we see with stocks. This will lead to an appeasement of the market.
To buy right now might be early. To wait for a correction in the 30 - 40% and then buy will put you on extensive hold and might just not happen.
To doom the market in this part of the world, as even the yanks come on their knees and beg for money, is somewhat hasty.
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