Business | Property
Long-term realty growth on track
Rising concerns over a much-expected property price correction, crystalised by a Morgan Stanley report predicting a 10 per cent price decline by the end of 2009, grew over the quiet months of the summer and Ramadan.
- By Simeon Kerr and Roula Khalaf, Financial Times
- Published: 23:21 November 14, 2008
- The downturn in sales activity in Dubai puts into reverse an 18-month surge in which some prices had more than doubled.
- Image Credit: Devadasan/Gulf News
Rising concerns over a much-expected property price correction, crystalised by a Morgan Stanley report predicting a 10 per cent price decline by the end of 2009, grew over the quiet months of the summer and Ramadan.
September's global financial turmoil heightened nervousness in the country's property and stock markets. HSBC last week said October prices fell four per cent in Dubai and five per cent in Abu Dhabi.
Speculators are exiting property investments, sending prices down for the first time since the boom started in 2002 when Dubai opened the property market to non-Gulf Arab buyers.
"A correction could be a blessing in disguise; we had an overheating market," said Marios Marath-eftis, an economist with Standard Chartered.
Mohammad Al Abbar, the chairman of Emaar, last week said the government had set up an advisory committee to balance supply with demand, an indication that the government might be considering slowing future projects to provide the market with a soft landing.
"We could see a delay in projects but the market is still undersupplied and if the UAE economy manages positive growth, it will probably continue to attract people," he said.
The downturn in sales activity puts into reverse an 18-month surge in which some prices had more than doubled. Property agents say prices have plunged in locations where the highest rises had taken place.
Sales of properties not yet built have been worst hit, explaining the HSBC's steeper decline in Abu Dhabi prices, where most of the property for sale is "off plan".
Most analysts remain upbeat on the UAE's longer-term outlook, despite the market's current woes.
"There is lots of negativity and that breeds panic, but the fundamentals are sound, you just have to look at the population growth to see there is going to be demand in the market," says Matthew Green, research director at Cluttons UAE.
Sultan Bin Sulayem, chairman of Nakheel, recently told bankers that some over-extended speculators were offloading their properties at a loss, but he expected the market to continue rising once confidence was restored. He said he welcomed the slowdown in sales activity because it showed speculators were being replaced by end-users.
Nevertheless, the banking crisis is hitting pros-pective homebuyers. Lloyds TSB has raised the minimum requirement for mortgages on villas to 50 per cent and stopped all lending for apartment purchases. Bankers say other lenders are preparing similar restrictions.
Decline
HSBC's research revealed a month-on-month 19 per cent decline in villa prices in October, triggered by lower mortgage loan-to-value ratios.
Emaar has launched a scheme to relax repayment terms to stimulate demand. Gowealthy.com says it continues to see good sales on off-plan property with attractive payment terms.
Given the sharp increase in lending costs, UAE developers also face a huge problem financing the billions of dollars of property planned over the next decade, bankers say.
Government officials say some of the more grandiose projects, which have yet to be launched to the public, could be shelved in the coming months, but none has been so far. While government-linked developers have a financial cushion, private developers face a bleaker outlook. Damac cut 200 staff, while Omniyat has also shed staff.
The city's legions of young property brokers look set to lose their commission-based jobs in coming months unless there is a turnround in sentiment.
Insiders say regulations drafted during the boom that are set to be introduced soon could help stall a market revival. Dubai's property regulator is mulling over the introduction of standardised contracts to make sure people know exactly how much space they are buying.
"Regulations were introduced to calm the bull market, no one was planning for a situation where prices were going down," said one developer.
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