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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

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

Government-owned Nakheel, developer of Dubai’s palm-shaped islands, is not in discussions over the sale of the company and has no immediate plans to cut more jobs, the chief executive told Reuters on Wednesday.

“There are no discussions with any parties,” O’Donnell said when asked whether any company had approached Nakheel about buying it.

Chris O’Donnell’s comments pour cold water on rampant speculation that the company will merge or will axe more positions after it announced on Sunday it had cut 500 jobs or 15 per cent of its workforce as it scales back projects due to the global financial crisis.

No smoke without a fire as they say……..!? Read the full story on this interesting rumour of Dubai company take overs here.

Middle East Business Dubai real estate, Middle East Business, Nakheel

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