Tuesday, May 26, 2009

Property slump report

There's a report on the world-wide property slump from Knight Frank which Bloomberg carried and is now in Arabian Business and The Kipp Report and will obviously hit the rest of the local media shortly.

The Bloomberg headline is 'Dubai Leads Global Housing-Market Slump'. At least the Kipp Report is accurate with 'Dubai world’s second worst performing property market'.

In fact the figures for the year to March 31 show Dubai second after Latvia for percentage decrease in property prices, with Dubai down 32%. Singapore's not much better at down 23% and they didn't have the huge increase the previous year that Dubai had - the report also contains the information that prices in Dubai rose the previous year by 48%.

Context folks, context.

Up 48% one year, down 32% the next.

Like anywhere else in the world, if you bought at the peak you'll lose money. I've seen it in the past in Oz, in the UK, in Singapore. People jumping on the property bandwagon at the wrong time and taking a hit. That's simply bad and naive investment.

I've long believed that you make money not when you sell property but when you buy it. Pay the right price for the right property at the right time and you will make money. I've proved it by doing it very successfully several times. When prices went too high I pulled my head in and stopped buying.

If you make a bad investment there's no point complaining and thrashing about blaming someone else. You made the wrong decision and the responsibility is yours.

The report also shows property prices down in thirty one countries with only fourteen showing an increase. Of interest to people here I guess: while India is showing an increase at the long-term par of 5% pa, prices are down in the UK, USA, Philippines, South Africa, Australia and a big chunk of Europe.

Knight Frank's report.

Bloomberg's take on it.

Kipp Report's story.


Anonymous said...

I work in real estate and believe the market has further to fall, there is genuine reason for concern in Dubai because interest rates are so high. My mortgage has recently increased to 9% - where's the logic?

Banks have yet to start ceasing properties, once this happens and banks start to auction homes prices will fall further.

It's not just the people that bought in the peak that have lost money, may properties are 50% down in price.

Dubai's biggest concern is the lack of investor confidence, not just in property but Dubai in general and without investors prices won't rise for sometime to come.


Seabee said...

I agree with you Richard, my feeling is the same as yours, there's some way to go yet.

I believe that interest rates are the starting point for everything economic. (I'm sure I've posted about being convinced that stupidly low interest rates were the root cause of the present economic crisis). The high mortgage rate here is simply unsustainable, or rather the success of real estate is dead if they don't come down to sensible levels.

I've also posted many times on confidence being so fundamental to Dubai's commercial future, and the need for the government to work urgently on things like inflation, traffic congestion, infrastructure and the overall Brand Dubai. As you say, it's not just in property.

Bush Mechanic said...

Singapore and I suspect the other poor real estate performers don't have entire suburbs of new and empty villas. All on pause. Take a drive up Al Quadra road beyond the Arabian Ranches, look at the empty unlit towers in the Marina or just accidentally get lost behind Ibn Battuta. Something is going to have to give. Loans will have to be repaid sooner or later.

ZeTallGerman said...

I'm currently relieved at the slow-down, but sometimes also a bit "shocked" at the symptoms: Driving down Sheikh Zayed Road after interchange 4, most of the large billboards that were up to recently still advertising "luxury living bla bla bla" are empty. On the Emirates Road after the Arabian Ranches it's even more barren. Dozens of empty bill boards.

alexander... said...

There's little doubt we haven't seen the worst and that the 'correction' will continue. It's going to get harder, IMHO, before it gets better.

I'm waiting for the end of the school year with more than a little trepidation...

But Dubai has survived worse, believe it or not. And my money says it'll come through again.

Having said that, my money's in the Isle of Man, not The Projects...

Seabee said...

Yes Alex Dubai has indeed seen worse. I was here when hotels had zero occupancy and survived on their F&B - something we benefit from even today, incidentally, with the tremendous F&B offerings from the hotels which are a continuation of those times.

I heard someone on the radio talking about "no-one in Dubai has experienced a recession" the other day. Absolute rubbish of course, there are more than a few poeople still here who experienced those days, and many more - me included - who also experienced recessions overseas.

GirlonTour said...

Agreed! (with the idea that you make money when you buy not sell). And unless you want to sell when the market is down (why would you?) then you really shouldn't lose.

Reluctant and Recluse said...

What i'd like to see is more a report on % property which is owned (paid up) outright rather than mortgaged. Haven't really sought it out really...

Having lived through an internet boom and bust as well as a property boom and bust in CA, i know things will have to come to some reality sooner or later.

One of the things that i think is a positive is the paid-up amount of holders of propery (myself included) who are not pushed to sell and not worried about a dip in prices to the reasonable level (still above what i paid). It's a long term investement in a diversified portfolio, which includes equities and even commodities (go gold!:) - but more importantly its a house, a place to live, and not pay rent - being a trained economist i also don't buy into those marginalistic views about ROI on home ownership vs. renting which can be swayed either way.

The difference in the margin/mortgage players here vs. say CA was the highly leveraged nature of their holdings and often inabiliy to actually afford the broader investments (on average) - something which even the new builders in CA sought to self-regulate (flipping was not allowed at the height of CA speculation market and often credit based ability to pay the balance beyond the down payment was verified and maintained). Something which i used to rant about missing here (mostly to myself).

The only thing that saved CA was the relitively free, accountable and litigious nature of the markets - something which Dubai does not have as yet. We have a lot of government regulation here, but we need the right kind of regulation that doesn't seek to protect only one class/culture of people in the market - and dare i say, we need to shake off some of the dead weight as well (on all sides, investors, developers, owners, renters...)

Just like your post, you have to take context into account. Now there are more vultures and sharks in the water (both in the investor and renter realm) and seeing red in the water they are in a frenzy - doom and gloom and predictions of armageddon, there is a time on the horizon when they will have to feed on themselves - which is what will lead us to the upcycle again! :)

ZeTallGerman said...

Well, Arabian Business today is reporting about the first property auction that took place yesterday: "UAE's first property auction flops"

None of the four lots in the UAE's first public property auction made their reserve price on Tuesday evening.

"There were no bidders for two lots - a four bed apartment in Jumeirah Beach Residence and a seven bed villa in Arabian Ranches - resulting in the auctioneer 'passing in' the properties."
"... but they will only be sold to the bidders if the seller agrees to lower his valuation because both bids were below the reserve price."

Seabee said...

ZTG, I don't think this is an indication of anything except that the market here doesn't understand property auctions. This was the first one here and most people come from countries where they're unusual too.

In Oz they're the normal way for property to be sold so everyone knows what they're all about and how they work. The CEO is Aussie and has simply translated the system here in its entirety.

A lot of potential buyers think they're going to get a bargain because it's an auction, when in fact it's just another way of selling - and if there are two or more keen buyers the price may go above market value.

The complete lack of understanding is shown in another Arabian Business article, the writer also being completely wrong about the concept. He says:
The concept of property auctions is that a number of dirt cheap properties are up for grabs.

You turn up with a small amount of cash, and walk away with the deal of your life. The greater the personal financial misery of the seller, the better.

Which is where last night went wrong to begin with. According to Kuceli himself, the sellers who put their properties up for sale were merely looking for another sales channel, having tried newspaper and web advertising.

They were not actually that desperate. That’s why no sales were made.
That isn't the concept of property auctions at all.

Then the regulations here meant that many of the possible properties didn't make it to the auction so only four were for sale.

One villa had two bidders but it didn't reach the reserve. That's not unusual and the real estate agent then gets the highest bidder and the vendor together to try to work out a deal.

Most auctions in Oz are actually on site at the property for sale and I suspect that may be a better way to do it here in future.

But first of all the company needs to do much more work on explaining the concept to both vendors and potential buyers.

(By the way, in Sydney about 40% of the properties offered don't sell at auction or immediately afterwards in the negotiations).

Anonymous said...

among all the fancy calculations on interests and % money to be made YOY etc, my simple mind goes like this:

I would've bought last year in dubai as i knew less. now i will never buy in dubai again, even if it is built in gold. logic is again simple minded:
1. Not enough citizens to buy, so has to be bought by expats.
2. expats buy on huge bank loan.
3. when the local or global market dips whenever, a percentage of people here will lose jobs.
4. when they lose job, they will try to sell what they own, since they cant leave otherwise. and they often have a month to sell, since visa kind of expires
5. this will push prices down to panic levels, and the rest of the market will also panic and spiral down.
6. the rest will have to hold their property, and not be able to sell till prices pick up.
7. in the meanwhile, i go and lose my job. i do not have money to foreclose my mortgage. i cannot find anyone to sell to at par, forget a profit
8.i cannot leave without settling the mortgage, i go to jail.
9. on top of it, i probably have to pay some 1000 usd every month as maintenance charges for my property, while in jail.

i am sure others can see it differently, but i dont think making money needs to be as convoluted as buying a property in dubai. this market fluctuations can happen anytime. remember, no one believed when last year someone said the market may collapse. you dont buy hotel rooms do you, you rent it.