European money in UAE realty sector could dry up

Dubai: For the last few years, Dubai's world-famous property market has been the life and soul of the party and has had unwavering faith in its unprecedented success and rocketing growth.

While western markets have been depressed under the global credit crunch, with people tightening their purses and saving money, Dubai has been safely tucked into the Gulf, building extravagant developments and watching money flooding into the real estate sector.

However, in the light of the collapse of Lehman Brothers, Barmak Besharaty, managing director of Al Mas Capital, said European Union money coming into the UAE's property sector will dry up.

"People don't have the money in general to buy properties over there [EU]. A lot of capital is pulling out of this region. Money flows will head out.

Liquidity crunch

"It's not because people don't want to buy. They simply don't have the money. This is a conversation that is going on around dinner tables in Germany, France and the UK," Besharaty said.

A UK-based real estate agent confirmed this, saying the outlook in the UK is grim.

"The UK property market has almost ground to a halt. The number of house sales is virtually down to nil," the agent told Gulf News, requesting anonymity.

However, Ryan Mahoney, managing director at Better Homes, said that although the global crunch may unsettle investors, real estate in this region will not be affected.

"The GCC market is the remaining island of growth. When all other markets shut down, it continues to be the only shop open on a Sunday," Mahoney said.

Dubai is the best bet among world markets for investors looking for alternative investment opportunities, outside European markets, Mahoney said.

However, UK investors may be more conservative now when it comes to investing their money.

"The money in major developments underway in Dubai, such as the Arabian Canal and Dubai World Central airport, is not in jeopardy. This coupled with the dynamism these projects create for the economy will ensure continued growth in Dubai," Mahoney said.

Besharaty predicts that property prices in the emirate will finally start to correct.

"Everything points to a levelling out of prices. We've been insulated from the financial credit crunch up until this point. Everyone's been happy and everyone wants to come and live in Dubai.

Concern

"I'm very concerned with the price of property going up so phenomenally. Affordability has gone way down. On one hand, you have very wealthy end-users or speculators whose homes stay vacant. On the other, families have to share properties, which is illegal anyway. Something has got to give with or without the financial credit crisis."

Besharaty added that the problems in the West will exacerbate the problems here eventually.

On the bright side, Dubai's government has mechanisms in place to ensure that the city's reputation does not suffer.

"Somehow, they will make projects happen. Somehow they will support the market to make sure there is no crash," said Besharaty.