Investments

Whilst real estate sectors and markets have collapsed in most markets world-wide in the past 6-9 months, it seemed according to analysts and experts that Cyprus was holding its own despite the global crisis.

Now with the weak and weakening British Pound and a collapse of the traditional mortgage market it seems that Cyprus too has been hit hard by the crisis but some feel that the many appeals of this Mediterranean island will make it less vulnerable to the crisis.

Let us see what is being said and written about Cyprus lately.

Assetz, a reputed UK real estate news provider and portal, quotes the readership of investor magazine Jet-to-Let for having Cyprus a preferred place to invest for 2009 :

For some of those buying in various places with lots of sunshine, golf may be a particular attraction, both for investors keen to tap into this part of the tourist sector and those who enjoy playing themselves, but in the case of Cyprusthe issue of water supply had been raised as a potential stumbling block to further development, until the recent vote by the government to allow 14 new courses to be built. As government spokesman Stefanos Stefanou commented: “It was taken for the purpose of strengthening the tourism product in Cyprus and boosting economic activity.” The courses will have to provide their own desalinated water, he noted.

While these plans have attracted much media attention of late, it would be an exaggeration to suggest that Cyprus is about to shoot to the top of the leader board among some overseas property investors because of these developments. The reason for this is simple - it is already there.

The readership of investor magazine Jet-to-Let revealed this in the annual survey of buyer intentions for 2009, which found that the island remains the single most popular place to invest, just as it was last year, with France still in second place and the US up to third, a position previously occupied by Spain.

Assetz conclude in their article that despite the apparent lack of golf courses on the island, Cyprus seems to have a very promising future in terms of its real estate investment sector :

So Cyprus, golf courses or not, is already a top performer. While whacking a white ball around a large open space may appeal, so too will sunshine, beaches, nightlife, history and culture, food and even the chance to go skiing on the island’s high mountains. For all the recent talk of 14 new golf courses, it may be suggested there are already many more than 14 reasons to visit - and invest on - this popular Mediterranean island.

Renowned property blog, International Property Investments, disagrees and reports in their latest article on the Cyprus market that the property market has now collapsed :

The Cyprus property boom is over. Whatever the internet investment websites and realtors claim, the Cypriot property market has irreversibly collapsed. The worldwide economic crisis has completely deflated the speculative bubble, and many property owners are desperately trying to sell properties on an already flooded market. Sadly, they face a long wait or must sell at an obscenely low cost, losing around 30%.

The turmoil in the British economy has completely finished off the Cyprus property boom. The weak pound means that the British are not buying and are, in fact, desperately trying to liquidate their assets and export the money back to the UK. In addition, the collapsing UK housing market has ensured that the days of second mortgages for holiday homes are a distant memory. With no British buyers, there is no market. Whilst many Cypriots, especially the construction industry, made money from the boom, backing a single horse is unwise if it falls at the final hurdle. Constructors are laying off workers on an unprecedented scale, and the whole sector is suffering an enforced streamlining process.

Banks, constructors, realtors and the government all shared the blinkered belief that the property values for foreign buyers would continue to rise, unabated. They made no attempt to prepare for the inevitable, and the whole economy is now suffering. Just as with British and American companies, they lauded the free-market when times were good, but now demand governmental interference when they begin to suffer. Deal with it, Guys - you backed the wrong horse and you lost. Just as in the rest of the world, prices will sink to a more realistic ‘bricks-and-mortar’ level.

On the positive side, the article admits that for those with money and if one is on the look-out for a nice luxury home in the Mediterrenean, now is not a bad time to be buying in Cyprus :

Of course, when there are losers, there are also winners. Whilst the days of making a quick buck have gone forever, for those wanting to buy a beautiful holiday home, now is the time to buy from a strong bargaining position. Developers are desperate to sell, you can knock at least 30% off the asking price. If you drive a hard bargain, and offer a quick deal and quick turnaround, they will fall over themselves to sell.

Their finishing comments, however, are not to be mis-understood though :

The Cyprus property boom is over, dead, kaput, finito, ciao, auf wiedersein, goodbye……..

It will be interesting to see if Cyprus with its fragile economy and its heavy dependance on tourism and real estate can come through the global credit crunch and recession unscathed.

Investment opportunities, Real Estate Investment Cyprus, Property Market, Realty

The world’s luxury property markets have taken a massive hit lately due to the economic downturn and financial global crisis and none more so than Dubai - the once home to the Miracle Boom.

Lately, Morgan Stanley has come out with some very dire predictions on Dubai claiming that “”it is worse than expected”" - this post looks into their arguments and where they have these from.

The Luxury Property Blog reorts :

The latest Morgan Stanley UAE property sector report is out and is not pretty reading. “Fallen off a cliff,” and “Worse than expected,” are not words one usually associates with the Dubai luxury market. So if Morgan Stanley have come clean, it might actually be accurate. The issue with Dubai is always lack of transparency and even MS are resorting to “anecdotal evidence,” of which there is no shortage.

Around $263 billion worth of real estate projects have been delayed or canceled as the UAE’s property sector is dealt a “worse than expected” blow by the global financial crisis, according to their report.

HSBC research reported recently that cancellations had reached $75 billion in Dubai alone, but a Morgan Stanley spokesperson said HSBC had failed to include three further large projects in its assessment.

The author of the blog does emphasize what this blogger has also personally witnessed lately namely that most of the information on Dubai and its troubled real estate sector is indeed anecdotal and not factual though there is admittedly so much of it that one would believe that something is not right :

Some of the project cancellations that have been officially announced are Sunland Group’s $654 million Atrium project and the $790 million Trump Tower project by Nakheel on Palm Jumeirah. Prices are falling dramatically as the sector is hit by job losses and project delays. A few choice quotes:

“Real estate prices in UAE capital Abu Dhabi are down by an average of 20% since a peak last summer as the UAE’s property sector is hit particularly hard by the global economic situation.”

“Residential property prices in Dubai have also fallen, by 25% in the last 4 months alone, with high-end real estate units taking the biggest hit.”

“Since September, Dubai apartment prices have fallen 25% and villa prices are off 26%, “belying the argument of some developers about the price resilience of villas and low-rise building segment.”

“Anecdotal evidence suggests sharp falls in transaction volumes in the fourth quarter due to deteriorating economic conditions, the disappearance of speculative buying and the lack of financing.”

“Prices of high-end Dubai properties including those at the Burj Dubai development that includes the world’s tallest tower, which reached its final height last week, as well as the man-made Palm Jumeirah are down 35% since their peak”

Emaar Properties is likely to be the “worst affected” among Dubai developers by the sudden plunge in prices.

“We believe that Emaar runs a high risk of sales returns and defaults among its recent launches.”

“The company’s high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak.”

Many analysts are predicting further falls in prices in 2009 for luxury property in Dubai, Khajeel Times is suggesting 50%, The Global Financial house only 30%.

Gulf Times of Doha, Qatar reports that property investors have called on Dubai’s real estate watchdog to act quickly to avoid a “complete collapse” of the sector :

“”amid growing fears on the financial strength of some developers and their ability to deliver more than $1tn worth of projects. “”

The article goes on to suggest that The Dubai Property Investors Group wants the official Dubai real estate authority, RERA, to rid of the fly-by-night investors and bring some order to the sector :

The Dubai Property Investors Group, made up of more than 300 local and international investors, lawyers and real estate developers, has delivered a petition to Dubai’s Real Estate Regulatory Authority, or RERA, to urge the watchdog to clamp down after a slue of corruption scandals raised concerns over standards.
The group is targeting “fly-by-night developers” that aren’t able to deliver projects amid tightening liquidity and project financing, even though they’ve taken down payments from investors.
“Any measure short of announcing which developers are bankrupt will continue to let real estate prices free fall,” the petition seen by Zawya Dow Jones says. “We do not want to make any more payments until we have proof that the developers have the financial ability to deliver our units.”

Transparency is also something that is needed and demanded :

“Sentiment amongst real estate investors in Dubai is very poor right now,” said Eric Swats, a partner at Dubai-based investment bank Rasmala Investments. “RERA needs to be as transparent as it possibly can, but also to allow the market to adjust to the new realities as quickly as possible.”
Last week, a Morgan Stanley report said $263bn worth of the UAE’s $1.25tn construction projects have been delayed or canceled.
Separate research carried out by the Dubai-based market research firm Proleads said $582bn worth, or 45%, of the Emirates’ projects are currently on hold.
Sentiment has worsened since a spate of damaging real estate scandals that led to the arrest of several prominent executives in the industry over the last year in Dubai.

The article concludes through quotes that lack of real demand and huge over-supply are two of the worst enemies to bring the market back to parity :

In the petition, the investor group urges RERA to cancel more mega-projects such as the $110bn Dubailand development and Nakheel’s Waterfront “until real demand exists.”
It says with thousands of people leaving Dubai on a daily basis as financial and real estate firms lay people off, oversupply is a real concern. “Cancelling of projects will reduce supply, increasing prices, but more importantly will increase confidence in the emirate that government is prudent,” investors say.
The group is also concerned that some developers are abusing recently introduced laws, which say that all money deposited into escrow accounts must be used for construction.
They say some developers are “illegally siphoning money” from the accounts for administrative or marketing costs, or for land payments to master developers.
Investors add that the new interpretation of existing laws by RERA in November no longer protect them if they default on payments.
At one time, investors were entitled to a minimum of 70% of any money paid to a developer if they defaulted, but the group says RERA’s new interpretation of the law means the developer will keep 30% of the total contract value if an investor defaults.

Will Dubai get it right and rectify what is a potentially devastating situation for the once famed Miracle City, or instead keep, to a large extend, pretending that nothing is wrong and cannot be saved by improved market conditions, or will it in fact become a ghost town thanks to the exodus of expatriates and workers, or perhaps even be bailed out by an oil rich Big Brother from Abu Dhabi or Saudi Arabia ?

Time will show and options are plenty but it remains a fact that if Dubai wants to remain a point of attraction for private as well as institutional investors it has to act now and with full force and transparency.

How it all works, Middle East Business, Real Estate Investment Dubai real estate, Emaar, Luxury Real Estate, Morgan Stanley, Nakheel, RERA

Lately, Dubai’s much talked about real estate sector has been badly hit by the Credit Crunch, perhaps more so than its neighbour Abu Dhabi whose future looks brighter due to its enormous oil & gas reserves.

Credit Suisse has just published their outlook on Dubai realty firms’ profit  for 2009 in International Property Investment for the 4th quarter of 2008 :

Credit Suisse expects earnings of Dubai-based developers to reflect the impact of the the global liquidity crunch that has slowed down the sector drastically.

In its fourth quarter preview on UAE real estate, Credit Suisse said it is projecting higher earnings for Abu Dhabi-based Aldar Properties and Sorouh Real Estate but expects the opposite for Dubai’s Union Properties and Emaar Properties.

“We expect earnings for Union Properties to decrease by 50% and Emaar 43%.” Credit Suisse said net profit for the fourth quarter of Emaar Properties, the region’s biggest property company, is expected to drop from the previous quarter to Dh855 million on slower revenue growth. Emaar posted a net profit of Dh1.51 billion in the third quarter of 2008.

The article goes on to conclude that CS expects Abu Dhabi to fare better in times of crisis due to the under supply of finished real estate projects unlike Dubai which seems to have over supply of both finished and off plan projects :

Dubai property developers are feeling the pinch of a global economic slump, with property prices dropping 23%  last December and continuing to fall, as thousands of expatriates lost jobs, leaving a huge oversupply of housing units.

Abu Dhabi developers will fare better than their Dubai counterparts with visible undersupply sustaining property prices and demand.

Abu Dhabi will fare slightly batter, thanks to massive injections of cash by the government, and the top property company, Aldar Properties’ net profit for the period is expected at Dh1.2 billion, 62% higher from the third quarter, with full year earnings expected at Dh4.6 billion.

Credit Suisse said, however, that about 40% of Aldar’s full year earnings is coming from a gain of revaluation of investment priorities, “which we expect to decrease in first quarter of 2009.”

2009 seems to be a real testing year for Dubai and its mega ambitions, not least so for its hyper real estate sector and this blog will continue to monitor the ups and down of the same.

How it all works, Real Estate Investment Abu Dhabi, Dubai, Middle East Business, Real estate crisis

For many years luxury real estate world-wide has had a fantastic time with soaring prices and strong demand, be that from the shores of Dubai till European top destination, the US and The Far East.

Last year the global economies and markets collapsed and with it the real estate sector, in fact it was the overheated  and over mortgaged US housing market that started it all. It would therefore seem only natural if luxury real estate plunged even deeper than ordinary real estate as times got tough but some seem to argue that luxury real estate is still doing well despite global crisis, credit crunch and financial scams.

This post takes the temperature on the luxury real estate market and how it is faring globally.

Shannon Molloy of Brisbane Times, Australia has an article about the dried up luxury real estate market and says:

Brisbane’s prestige property market will ‘languish’ this year as former corporate high-flyers rein in their spending, according to experts.

The top end of local real estate has enjoyed soaring prices and strong demand for several years, but RP Data researcher Cameron Kusher believes the good times are over.

Holiday homes, executive apartments, luxury property and tourism-driven investments could soon flood the market as the global financial crisis and economic uncertainty force owners to sell, Mr Kusher said.

And demand for million dollar homes looks certain to dry up thanks to factors such as poor company profits, lower than expected bonuses and losses in the stock market, he said.

“As a result of these changes in the top end, there will be a lot more forced sales… the affluent-type markets are likely to languish,” Mr Kusher said.

The article goes on to quote local experts for saying that long-term the market shall recover its value but short term remains grim:

Mr Greensill said demand for luxury homes had been in “almost free-fall” for months, but he did not believe there would be a long-term drop in values.

“Now is not a good time to sell a prestige home, so meeting the market requires a significant drop in price… but I think values will hold steady in the long run,” he said.

Jens Fischer of Pravda, Russia is one of the optimists and he argues that the European luxury real estate market has remained stable and not lost its value and appeal :

Many people think that if there is a crisis, crisis is everywhere. However, there are several sunny islands in the storming ocean, that keep prospering and attracting survivors. Name of one of them is Luxury Real Estate. The American real estate crisis has reached Europe – a fact that cannot be denied on the one hand but that has to be seen in different ways. Whilst prices in many regions and countries in Western Europe for standard houses have dropped up to twenty-five percent in 2008, which applies to almost all countries in Western Europe, the luxury market remains relatively stable. No substantial consolidation can be seen here, nor do experts expect a consolidation period to come during the next months.

The European luxury property market mainly refers to properties in traditional, posh, sought-after and highly reputable prime locations throughout Europe. Prices ranging from 1 million Euros up to more than 125 million Euros are being paid to some of the most exclusive freehold houses and mansions currently on the market in France and Spain and 750k and more for exclusive condos. Such properties usually qualify as luxury consumer goods pretty similar to sports cars, yachts and jewellery, and therefore are less influenced and affected by the general market downfall. Buying these properties is of a rather more emotional than of a reasonable nature and as a result is subject to differing behavior.

Professional real estate blogger and writer, Mark Knowles, disagrees with Mr Fischer in his comments to the latter’s positive views on luxury real estate and has the following to say to him:

Much as I hate to rain on anyone’s parade (not true), I feel I must break some bad news to you Mr Fischer - London luxury propertyprices fell 20% last year and are continuing to decline rapidly. I personally can introduce you to a Russian aluminum magnate who will sell you a villa in Italy, just over the border from France’s Cote D’Azur, that was bought last year for E 3.5 million that he would cheerfully take E1.5 million for. Roman Abramovich will sell you his yacht Pelorus for any sensible offer, and the previously mentioned aluminum magnate has already taken his boat out of the water and fired all the staff.

UBS Bank of Switzerand’s shares fell again todayafter the SonntagsZeitung reported  they had made $7.2 billion in losses in Q4, bringing their total losses for the year up to almost $20 billion; the biggest Swiss corporate loss on record. No comment from the bank apparently.

Hardly seems worth discussing Marbella, but there are now a few “interesting,” property scams coming to light in the Spanish markets. A British politician is calling for an equiry into Ocean View Properties, a British property company that transferred £100 million to a Spanish developer which then evaporated (the money not the developer). The deal was apparently brokered and arranged by convicted fraudster Sean Woodhall, who conveniently disappeared in a light aircraft crash in Brazil last May. No bodies were recovered, but the Spanish developer claims to have paid back the money. There have been a lot of these recently - last month aloneFortuna Estates were busted for land fraud and Aifos, a Marbella-based developer was forced into recievership by one of their creditors. The owner and Managing Director of Aifos were both arrested for fraud some time back, but the failure of yet another developer Tremon apparently prompted the proceedings. Unravelling the mess of the Spanish property markets  is going to take years.

Deidre Woollard of Luxist.com explains how the once untouchable and in-demand London and Manhattan luxury real estate markets have also suffered lately :

A recent article predicted continued gloom for the California real estate market this year but two other expensive markets are also in peril. The high-end market in Manhattan, once believed to be impervious to economic doom, spent the last quarter of 2008 catching up to the rest of the world. Properties that once would have been snapped up in days for a price close to list have now sat on the market for months and faced deep price cuts. A report from Prudential Douglas Elliman reveals that the median sales price of a luxury apartment (defined as the top 10 percent of the market) fell nearly four percent to $4.02 million in the fourth quarter of 2008 compared to last year. The top of the market is likely to continue to weaken as the fallout from failed banks and Wall Street firms continues to be felt. Our Sunday real estate round-up continues to show buying from financial fat cats but many are trying to sell their apartments for readily available wealth. StreetEasy.com says that almost 42 percent of the 259 Manhattan homes currently listed for $10 million or more came on the market since September. What affects Manhattan also affects the Hamptons with vacation and second homes searching for buyers that may be less ready to invest in something for pure pleasure.

It’s not much better across the pond. Bloomberg reports that luxury home values in London’s nine most expensive neighborhoods fell almost 17 percent last year. Like New York City, London is a big financial center and the loss of jobs in banking, finance, insurance and related industries is having a big impact on the market. The real estate brokers at Knight Frank report that the number of houses and apartments sold for at least 1 million pounds last year fell 49 percent from 2007’s record number. Overall it is predicted that London luxury housing values could fall by 30 percent by the time the real estate slump hits its inevitable bottom.

Yusuf Abdullah of  Media Monitors Network has this interesting report into the much talked about Dubai real estate scene of which quite a lot can be categorized under the luxury umbrella :

The property bubble in Dubai has burst as credit has become scarce and international investors have scrambled to dump their assets to minimize losses. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing. The rulers of Dubai had speculated that the price of oil would perhaps continue its upward surge–it had reached $147/barrel before its precipitous fall to $40/barrel or less in recent days. With Dubai’s reserves at a paltry 4 billion barrels compared to Abu Dhabi’s 92 billion, Dubai is more vulnerable to such price fluctuations.

Banks have tightened lending or frozen it altogether. Amlak Finance PJSC, one of the biggest mortgage lenders in the UAE, announced on November 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on November 11 and reduced the amount it will lend for villas from 80 percent to 50 percent of the price. This has naturally had a negative effect on property values. For instance, in November, the cost of a seven-bedroom villa on Palm Jumeirah dropped to 19 million dirhams ($5.2 million), still an exorbitant price, down from 30 million dirhams in September, according to the Dubai unit of German real estate company Engel & Voelkers AG.

Simon Packard of Bloomberg confirms that the London luxury real estate market is not in a good condition:

Luxury home values in central London fell in 2008 by the most in more than three decades as the worst banking crisis since World War I decimated demand from the city’s financial professionals.

The average value of a house or apartment in London’s nine most expensive neighborhoods fell almost 17 percent last year, according to Knight Frank LLP, which tracks prices dating back to 1976. Values declined 2.2 percent in December, the ninth consecutive monthly drop in an index that mostly covers homes costing at least 1 million pounds ($1.5 million).

Demand for residential property in the U.K. capital has waned amid a worldwide credit crisis that the research firm Oxford Economics estimates could cost London 60,000 jobs in banking, finance and insurance by the end of 2010.

“The market’s fortunes will be driven by economic conditions — especially those in the City,” said Liam Bailey, Knight Frank’s head of residential research, referring to London’s main financial district.

Worst hit so far have been homes worth up to 2.5 million pounds, a segment of the market where values fell 22 percent last year. Homes in that tier are favored by financial professionals who have been hit with job losses and “fears of further job cuts in 2009,” Bailey said.

The flip side of this negative status quo and short term outlook for the luxury real estate market is of course that it offers a tremendous buying opportunity for the cash rich and affluent investor so if you are looking for your dream luxury holiday or retirement castle and you match this profile of sitting on a mountain of cash, now is not a bad time to go shopping !

Real Estate Investment, UK Investment, US Investments Dubai real estate, London, Luxury Real Estate, Manhattan, Mark Knowles

In recent years, well almost a decade now, leading economists and financial analysts from all over the world have been amazed by what has been termed by many as The Dubai Miracle which tells a story of a city’s explosive and phenomenal growth and expansion, real estate projects on a scale that would be large even by US or Chinese standards and announcements of further growth and developmentsthat make even the most gung-ho developers dizzy.

Recently many of us thought we had it wrong when reading about the latest plans in Dubai to have one of its prime beaches cooled down artificially for the benefit of the guests at the hotel (read the full story on this here) but then again we are talking about Dubai - a place where everything seems to be possible.

Lately, however, Dubai has started to feel the effects of the major world financial crisis, despite strong government and semi-government statements from as recent as November (click here to read Mr Mohammad Al Abbar’s statement from November) refusing to agree that Dubai would be sucked into this global financial turmoil.

There are now clear signs that Dubai is beginning to suffer too, not least in its major real estate sector where most of the major projects are focused but also its tourism sector, and there are now many voices of concern and unhappiness emerging from consumers and investors alike not to mention the financial institutions who are heavily exposed in this massive project called Dubai.

This blog looks into some of the signs and concerns that are now facing Dubai and asks the questions whether the Dubai Miracle is coming to an end or if in fact they will somehow come through this crisis stronger and better than before.

The Wall Street Journal tells a story about Dubai lenders beginning to feel the squeeze as mortgage defaults by overstretched borrowers is now becoming common:

Borrowers are being squeezed by higher interest rates and job cuts by major employers hurt by the global financial crisis. Property developers also were affected Sunday as tumbling oil prices hurt sentiment, leading the region’s stock markets lower.

As borrowers run into trouble, officials at HSBC Holdings PLC, the largest international bank by assets offering mortgages in Dubai, told Zawya Dow Jones that the lender has been contacted by a growing number of customers in the emirate struggling to pay their home finance.

At Emirates NBD, the Gulf’s largest lender by assets, an official said the bank has witnessed “significant defaults from the speculative community.” However, the official wouldn’t disclose if the bank itself has been experiencing defaults.

The same article from WSJ goes on to point out that even though banks and lenders have the right to re-possess properties from clients if they default, there is no precedence for foreclosures in Dubai which could lead to additional worries and problems for the financial institutions who are heavily exposed in the property market:

Although new mortgage laws say banks are entitled to repossess a property if a borrower defaults on a mortgage for more than 60 days, experts said foreclosure may be a lot more difficult in practice.

“There is a mechanism in place for foreclosures, but it’s never been tested before,” said Charcol’s Mr. Dommett. “In practice, the process could take a very long time, and banks could be left with property on their books that they’re unable to sell.”

Local Dubai-based newspaper, Gulf News, tells a story on how several companies are now struggling for finance and credit and how they are trying to raise cash from investors:

Dubai-based property developer Union Properties said Monday that it wanted to issue up to Dh2.5 billion of convertible bonds, as securing project financing from banks had become difficult during the financial crisis. Convertible bonds allow investors who have lent money to companies to change the debt into shares in the business.

Also, Shuaa Capital, a leading regional investment bank said on Monday it would seek shareholder approval next month to extend the maturity of its convertible bonds.

“The signal is that they need cash. Banks will not give you cash now or they will do it with too many conditions. Selling bonds is a tool to get money and the strategic investor is entitled to an interest dividend of 6 or 7 per cent,” said Hamood Abdullah Al Yasi, general manager at Emirates International Securities on Monday.

 Meanwhile, and perhaps rather surprisingly amidst the majority of observers being quite possimistic about Dubai’s economic outlook, Swiss banking giant Credit Suisse has reiterated a positive outlook for Dubai’s troubled real estate sector as business daily Emirates Buisness 24/7 reports:

Swiss bank Credit Suisse has reiterated a positive outlook for the UAE property sector, as it believes that real estate market will recover quickly from the current turmoil due to the country’s solid macroeconomic fundamentals.

“As a result of a slowdown in economic growth and liquidity challenges in the GCC region, we downgrade our target prices for most real estate stocks in the UAE. However, we stay overweight on the sector as we believe the UAE real estate market will recover quickly from the current turmoil thanks to its solid macroeconomic fundamentals,” the bank said in a report titled “Emea Real Estate Outlook 2009.”

The article goes on to quote Credit Suisse for predicting that both the Dubai and Abu Dhabi governments will have the biggest effect on the future of the real estate sector:

The bank believes that there are three potential catalysts that should be monitored in the short term: Oil prices, which have a strong effect on the UAE’s liquidity and hence the real estate market. Any sign of upside in oil prices would be viewed as positive news; bringing the real estate sector under the umbrella of the federal government, which is dominated by Abu Dhabi, thus ensuring the availability of liquidity; and positive news about the condition of the real estate market in Dubai.

“We believe that the market is discounting most of the negative newsflow about the lack of funding, shortage of mortgage availability and the fact that Dubai is a highly leveraged market in a global credit crisis. In our view, it even assigns a zero value for some projects in the pipeline for some UAE developers. We expect that developers will cut supply as demand deteriorates as a result of negative sentiment and the shortage of liquidity, which will in turn affect their forward NAV as they sell fewer units than expected.”

The article goes on to quote Credit Suisse for saying that the governments must control and also cut the supply of real estate projects in order to avoid a collapse and get back on track:

Credit Suisse believe that cutting supply to keep a sustainable level of demand will not be enough without an effective solution for financing problems in the UAE, especially on the demand side.

“We think that the UAE federal government (through sovereign funds) will have to play an active role in providing financing for both home buyers and developers, as the financing situation, especially in Dubai, is currently under pressure.”

The old question of whether Abu Dhabi, which is where the Federal Government sits and also where 90%+ of all UAE’s oil revenue stems from, is truly committed to financing and underwrite Dubai’s massive real estate expansion, is also highlighted by Credit Suisse as a key factor to the recovery:

“We are confident that the Abu Dhabi government is still committed to financing development projects in the emirate and will provide the required support for those projects. However, we think the most important question is, will the federal government, which is dominated by Abu Dhabi, provide financial assistance to the real estate market in Dubai?

“We believe it is in the interests of the UAE that the Dubai market remains sustainable and think the federal government may step in to make sure that the real estate market in Dubai doesn’t go into a deep slump because of the current shortage in liquidity. However, it is difficult to determine the form of this involvement. We also believe that there is likely to be some sort of consolidation among developers in both emirates, thus bringing the sector under the umbrella of the federal government in the future,” Credit Suisse said.

What the next chapters in the Story of Dubai have to reveal only time will tell but it goes without saying that Dubai’s growth and expansion till date as spearheaded by its visionary ruler Sheikh Mohammed Bin Rashid Al Maktoum has been a truly amazing story to follow and whilst many analysts and economists now remain cautious if not pessimistic about Dubai’s future and ability to come through this current and deepening crisis unscathed, this author would not put it past Dubai to come out on top - once again.

This blog will continue to follow the ups and downs of Dubai to see where it all ends - or as it may be begins again.

Investment News, Investment opportunities, Middle East Business, Real Estate Investment Abu Dhabi, Credit Suisse, Dubai, Dubai real estate, Financial crisis, UAE

Traditionally, real estate has been a rock solid investment during most times and one that consumers and investors alike can relate well too. Recently, however, prices on properties world wide have dropped significantly and apart from the distress it gives homeowners, who find themselves unable to meet their mortgages and/or sell their houses, it has thrown into doubt to investors, private as well as institutional, the validity of real estate as an investment.

This post looks into what the experts say and expect moving forward.

Eric Ames from Seeking Alpha has this to say :

…..real estate appreciation is not a reliable wealth builder. No one can predict which way prices will go next, and people should not rely on appreciation estimates when evaluating the worth of an investment opportunity. Investors should look instead at the cash flow numbers. Cash flow is something tangible, and it doesn’t require a call into the psychic hotline to predict.

In addition, properties that command better cash flow typically do not drop in price as much during market fluctuations. Dramatic price drops happen when people sell in desperation. They have to get out from under the house, so they drop the price until it sells. What motivation does an investor have to drop the price on their rental house if it is bringing in money every month? The answer is that they have very little motivation to do so, and so they probably won’t.

So while I agree that property appreciation shouldn’t be counted on anymore, that doesn’t make real estate a bad investment. Primary residences and rental properties are two entirely different animals and should be looked at independently when evaluating the merit of real estate as an investment. Investors can still make great money in the real estate market if they focus on the right things.

Mr Ames concludes vis-a-vis the US Housing Market that:

Is it the best path to wealth for Americans? I think the answer to that question is yes and no. I think it can be for the right person, who is willing to put in the time and energy. For the person who tries to cut corners, real estate investing is likely to be a painful and costly experience.

Bloomberg has an updated view and insight into Dubai’s troubled real estate scene which paints a very dark picture and perhaps future for Dubai itself, far beyond its real estate investments:

The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing.

“Dubai is more precarious than it has ever been,” said Christopher Davidson, author of “Dubai: The Vulnerability of Success” (2008, Columbia University Press). “If the property industry collapses in Dubai, it will be finished. Dubai’s relative autonomy will come to an abrupt end.”

The emirate’s push into luxury property developments and tourist attractions was diversification on “paper sand,” said Davidson, a professor of Middle Eastern affairs at Durham University in the U.K.

The same article goes on to conclude that Dubai’s investment honeymoon is over :

Real-estate values surged fourfold over the past five years, fueled by a supply shortage and an influx of expatriates. Rising commodities prices drove inflation, which accelerated to a record 11.1 percent in the U.A.E. last year. Dubai opened its property market to foreign investment in 2002.

Borrowers tapped mortgages for as much as 90 percent of a property’s value to buy homes on the manmade fronds of the Palm Jumeirah and villas with gardens or golf-course views in developments such as Emirates Hills, The Springs and The Lakes.

Now the credit crunch is coming to Dubai. It’s being aggravated by oil prices that have tumbled 68 percent since reaching a record $147.27 a barrel on July 11.

That will mean less interest in buying third or fourth homes in Dubai, said Gabriel Stein, a director at London’s Lombard Street Research, which provides economic analysis.

“There are bound to be white-elephant developments,” he said. “If it was built on the premise of ‘build it and they will come’ then that will now turn out to be a mistake.”

Banks are tightening lending or freezing it altogether. Amlak Finance PJSC, one of the U.A.E.’s biggest mortgage lenders, said Nov. 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on Nov. 11 and reduced the amount it will lend for villas to 50 percent of the price, from 80 percent.

The cost of a seven-bedroom villa on Palm Jumeirahdropped to as low as 19 million dirhams ($5.2 million) last month, from 30 million dirhams in September, according to the Dubai unit of German real-estate company Engel & Voelkers AG.

Matt Woolsey gives a quick global round up of a dire real estate scene in his latest article :

The sun isn’t shining for homeowners in Malaga, on the Costa del Sol.

Foreign buyers have stopped purchasing homes site unseen. Vacation home-seeking Spaniards, heeding the government’s warnings about a recession, have also pulled back. That leaves 54,000 vacant and unsold new properties throughout Malaga province, according to the Spanish Ministry of Housing. That’s 34,000 more than in all of boom-bust capital Phoenix, Ariz., based on Trulia.com figures pulled from Arizona’s multiple listing services, despite Phoenix’s 200,000 person larger population base.What’s more, 93% of Spanish mortgages are of variable rate, according to the European Mortgage Federation, thus pegging them to the growing Euribor rate. In 2003, that dipped to 1.94%; it’s now 4.27%.

And he continues :

As the real estate industry limps into 2009, such barometers are expected to remain bleak. To illustrate, Forbes.com assembled a series of snapshots of global real estate markets.

In some places, like the Baltic states, recent overbuilding is leading to softening. In Dubai, the slowdown stems from concerns about a declining oil market and in Spain and Florida, massive mortgage bubbles are driving down prices and upping defaults.

Of course, spots under sunny skies and sandy beaches aren’t the only ones suffering. Since the U.K. property market’s apex in March 2008, prices are down 13.4%, according to Knight Frank, a London-based real estate firm. Its head of residential research, Liam Bailey expects that in 2009, “U.K. residential prices will fall 30% from their peak, taking values back to September 2003 levels.”

This is also happening in the U.S. and Ireland. Both countries’ housing markets have lost more than 10% of their value in the last 12 months. Across both, prices have fallen to 2005 levels, according to Zillow.com, a U.S. data firm, and the Economic and Social Research Institute, an Irish research group.

Many economists believe the bottom has yet to arrive. For that, they are looking to the 2003 level, which is the technical point at which price booms began around the world.

But even that can’t be trusted.

“Nobody is going to buy buildings when they can buy first mortgages or second mortgages with 19 or 15% returns,” says D. Kenneth Patton, professor at NYU’s Schack Institute.

When transactions for buildings instead of mortgages return to favor, look for deals to take place in the U.S. This is because many investors see the American market as a good long-term play.

“Foreign investors have always targeted the major U.S. cities as being one of the best places to invest,” says Richard Kessler, chief operating officer of Benenson Capital Partners, a New York real estate fund. “I think when they come back into the market, they’ll come back into those marketplaces; the New Yorks, L.A.’s and San Frans.”

Until that point, however, expect another painful year around the globe.

Forbes throw light on the Asian real estate scene which is also witnessing a drastic drop and exodus of investors:

The real estate markets in India and China are fizzling. Over the last five years, prices for homes in China doubled. Now the number of sales and home values are falling in many parts of the country.

Oversupply and a slowing Chinese economy are playing a role. Also hampering real estate values is China’s ambitious stimulus plan to encourage the construction of new, affordable housing. Real estate investors worry the increased supply will push down prices further. (See “Olympian Bust?”)

India’s real estate market is following a similar course. It boomed over the past five years and now is slowing. High inflation and tightened credit are throttling the Indian economy. The restricted credit is also making it harder and more expensive for buyers to finance acquisitions.

The author goes on to give examples of billionaires from both countries who have suffered massive losses due to real estate:

Nobody’s more aware of the real estate market’s woes than KP Singh. The Indian billionaire is still worth $7.8 billion, but that’s just a fraction of his worth earlier this year. In March, we pegged his fortune at $30 billion. Shares of DLF, Singh’s real estate company, fell steeply over the past year.

Singh announced Tuesday that his company was deferring some projects because of weakening demand and a credit crunch. “Demand has gone down so substantially that now [a] lot of projects are being closed down,” he told a Reuters reporter at the India Economic Summit.

A sudden wealth evaporation also struck Yang Huiyan of China. In 2007, Yang Huiyan topped our list or China’s richest people with a fortune of $16.2 billion. She’s no longer at the top because her fortune fell to $2.2 billion.

For those investors and individuals with cash on hand, however, there are some amazing buying opportunities out there right now and most of these bargains will only get better as this author expects the real estate prices globally to continue to drop significantly during 2009, and probably beyond.

Asian Investments, Investment News, Middle East Business, Real Estate Investment investment properties, Real estate crisis

Emaar’s latest venture into retail.

Middle East Business, Real Estate Investment, Video Emaar, Middle East Business, retail

Those who have been investing in Cyprus in recent years have been enjoying a number of advantageous circumstances. The long-term attractions of sunshine and sea, the frequent speaking of English and a rich cultural heritage are all perennials. The development of new facilities for visitors, the growth of the economy and latterly the accession of the country to the European Union and then the eurozone have all boosted the industry.

Right now, however, the economy has inevitably taken something of a hit, due to the economic suffering of the country’s trading partners inside the eurozone and beyond.

Speaking this week, Central Bank governor Athanasios Orphanides said that while this year’s economic growth rate will be around 3.7 per cent, it will be down to two per cent next year. While this is the sort of figure most countries would be delighted with right now, the fall will have a significant effect on the country, Mr Orphanides noted. In particular, he suggested, the worst impact would be on the tourism and construction sectors.

Very interesting read about Cyprus and its real estate sector and opportunities - it appears that Cyprus may be a very good bet for even near future real estate investors - read the full article here.

Real Estate Investment Cyprus, Investment, Real Estate Investment

Honesty and trust are two major issues plaguing the Dubai property market at the moment. Dubai is crashing hard and fast, with The Trump International Hotel and Tower in Dubai canceled, and numerous developers in Dubai firing staff, yet still the developers and government insist on putting out dis-honest press releases aimed at presenting a false picture of the market. And so-called “news,” sources in the Gulf continue to publish them. Even when they directly contradict the facts.

Read a full insight into the troubled and not-so-straight Dubai real estate scene here.

Real Estate Investment Dubai real estate, Middle East Business

The once-booming real estate sector of the emirate is showing signs of collapsing due to the global credit crisis, as prices fall sharply and buyers struggle to get mortgage loans.

 ”There is a sizeable increase in the number of property owners in an urgent state to sell,” Robert Macnair, sales director of Dubai-based Elysian Real Estate, told Reuters on Thursday.

and the article goes on to conclude :

Global Property Guide cut its long-term investment rating on Dubai residential property on Wednesday from neutral to negative due to the drop in gross rental yields from last year.

 ”Gross yields are now an average of 5.5 percent, significantly down from an average of 7.5 percent a year ago … At these levels, Dubai is less attractive than it was previously as an investment property,” it said in a research note.

 Global Property Guide said Dubai has “an enormous” amount of new supply and expects prices to fall over the next 2-3 years.

 To compound matters, Dubai Islamic mortgage lender Amlak AMLK.DU said on Wednesday it suspended new loans. This follows moves by several banks to tighten lending conditions in August and September.

 ”It is very hard to get loans now. Customers are suffering,” Rehab Gouda, senior sales agent at Al Jabal Real Estate told Reuters.

Check out the full story about Dubai’s fall from grace.

Real Estate Investment Dubai, Real estate crisis, United Arab Emirates