As the Dubai property market continues to struggle with investors looking to exit the market at any price it seems as though the only way is down to the moment but has the distressed selling only just begun or are we nearing the end of the downward cycle?
The Dubai property market in general
There is no doubt that after a period of tremendous growth the Dubai property market is very much on the way down. Many property developers have left the scene, international investors are avoiding the area and there are concerns about the local economy and the massive debt which has been racked up over the last few years. We have also seen many property experts writing off Dubai for the short to medium term. But are things really that bad?
When the Dubai property market was doing very well it was literally hitting headlines around the world which attracted more and more investors, pushing prices higher and higher with many people ignoring potential problems such as lightning fast changes in regulation and an overbearing local authority who literally wanted to rule the market. However, now the market has turned and international investors have left the scene many of the problems which were hidden under the surface of now exploding into the limelight causing much concern for investors.
Distressed property sales in Dubai
The last few months have seen a gradual increase in desperation amongst those looking to dispose of their properties in Dubai. Slowly but surely demand has ebbed away which initially caused a gradual slide in prices, although the pace of the falls has started to quicken of late. There are signs that new developments are in serious trouble and those who had literally doubled their money during the property boom are now counting the cost with many property prices back to where they started.
Among the more distressed property price sales reported of late include:-
A Palm Jumeirah garden home which sold for just AED5.8 million, a price which very few people thought they would ever see again. This is an approximate fall of about 50% from the highs reached only a few months ago.
There are also reports of distressed sales in Downtown Burj Dubai where properties are just not selling and investors are becoming more and more desperate to exit the region. There is a suggestion that one-bedroom apartments in the Burj Dubai (the tallest tower) are changing hands for just AED800k.
There is mention on the thread of a Palm Signature villa changing hands at just AED4.9 million against a valuation price of AED11 million in October 2008. Quite literally prices are continually falling and while there is some interest, buyers most definitely have the upper hand.
Why is nobody buying at these rock bottom prices?
In many ways the Dubai property market has become a victim of its own success whereby many property investors and property developers have made substantial money over the last few years, pushing prices to levels which were unsustainable in the medium to longer term. Now that demand has literally vanished overnight we have seen property prices falling back to levels which were seen a few years ago and which many people believed they would never be seen again.
A mixture of pessimism with regards to the market, belief that prices will fall further in the short term and a lack of finance are magnifying the problem exponentially and the ongoing publicity of distressed property sales and ongoing price falls is adding to the problem. The chances are that once we start to see the market steady off and prices start to move upwards, so long as finance is available, there could be significant demand and a “V” shaped recovery in the medium to longer term.
In basic terms we are looking at the two main human factors which push markets higher and push markets lower, i.e. fear and greed. As prices continued to rise and rise many property investors, both domestic and international, began to get greedy and chase prices higher and higher in the knowledge that if they sold before the “crash” they would still make significant returns. However, as property prices started to fall we saw many investors fearing for their financial futures and literally dumping property on the market at any price – distressed sales have now become the norm and buyers are able to negotiate massive discounts on sale prices.
While the forums and blogs of the property world are full of distressed sale transactions in the Dubai property market there is every chance that investors will sit on the sidelines with no real rush to gain exposure as the worldwide economy continues to suffer. The ongoing risk of a worldwide depression is also being pushed to the forefront of many investors and many economists thoughts with a suggestion that unless the US and Chinese authorities, together with the EU, can work together to refloat the worldwide economy, we could be in serious trouble.
The obvious major casualties of an ongoing reduction in credit and a shrinking of the worldwide economy would be the more luxurious areas of the world such as Dubai which depend upon the affluent tourist market to survive. An ongoing reduction in tourist visitor numbers to the region will have an impact on the local economy, the property market and the business arena.
The last few weeks especially has a significant increase in the number of distressed property sales in Dubai as more and more investors feel the pinch and look to liquidate their assets as quickly as possible. While there is no doubt that longer term we are starting to see value creep back into the Dubai property market many investors are of the opinion that there is no need to rush in at this moment in time.
There is also concern that the worldwide media have been highlighting the substantial fall in property prices in Dubai and this is creating a climate of fear with few investors willing to consider the region and many property owners now panicking about the prospect of further property price falls in the short term. Against this background of doom and gloom we are sure to see more and more distressed property sales reported to the market although slowly but surely we should see some of the more long-term value investors picking up ad hoc properties as and when they are able to negotiate substantial sale price reductions.
Dubai is most definitely a property buyers market at the moment and we are seeing investors picking and choosing their areas very carefully and able to arrange significant sale price reductions to those published in the property market press.