Recent hope that the property market in Dubai might be bottoming out as the number of transactions increased have been dashed by the news that the Emirate has debts of $80 billion that it cannot currently re-pay.
Most of the debt is owed by government owned Dubai World, parent company of master developer Nakheel that is building some of the most well known projects such as The World and Palm Jumeirah. The company has announced a six month standstill which means it cannot pay any of its $60 billion debts before May 2010.
Meanwhile the government has called in accounts Deloitte to work on a restructuring plan leaving many property investors wondering what will happen with their money.
As it is a national holiday there is little reaction coming out of the Emirate but the news does leave recent predictions that the Dubai property market is set for a recovery in 2010 looking unlikely.
Off plan investors have already deserted the real estate market as prices have plunged by up to 50% in the last year. Now those whose money is locked up in projects connected with Dubai World will be wondering what happens now. Many have contracts that should protect them if the developer goes bust or there is a major delay on delivering units, but the fact that Dubai World is in such serious trouble will leave them wondering if they are sufficiently covered for this latest scenario.
In recent months many developers have been re-negotiating payment plans as a result of pressure from investors over projects being delayed and prices spiraling downwards. Right now though there is no news on what Nakheel, for example, intends to do regarding its investors.
The recent Dubai House Price Index from property consultants Colliers International showed that prices were down 47% year-on-year in the third quarter of 2009 but they rose 7% compared to the second quarter. The volume of transactions grew 64 % in the same period. The report prompted much debate that the Dubai property market was bottoming out.
Now it has to re-adjust itself again as the property market enters a new era of gloom and the shock waves of debt threaten to turn it into a construction ghost town.