Thursday, December 4, 2008 5 comments ++[ CLICK TO COMMENT ]++

Dubai property bubble has possibly burst

Still too early but it may be the end of the Dubai property boom. This is one of the few bubbles that was called by the mainstream consensus (another one that was called by everyone was the Chinese stock market bubble.) Bloomberg reports:

A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov. 25 edition of Gulf News, the United Arab Emirates’ biggest newspaper, with the headline: “DIRECT FROM OWNER DISTRESS SALE!!!” Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 percent.

“There is panic in the market,” said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties.

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.

Bloomberg quotes analysts at EFG-Hermes as saying "Real-estate prices may drop 20 percent or more..." A 20% drop is bad but wouldn't be as severe as in USA, Britain, and similar housing bubble regions. But this is coming from an investment bank and we all know how well the American investment banks called the housing bubble.

Moody's--another party with weakening credentials and somehow missed the US bubble--says that Dubai may need to be bailed out by UAE or Abu Dhabi if the bust ends up being severe:

The sheikhdom may need help from Abu Dhabi and the U.A.E. to service its debt, according to Moody’s Investors Service. Dubai borrowed $80 billion to finance its transformation and make up for a lack of natural resources. It has just 4 billion barrels of oil reserves, compared with Abu Dhabi’s 92.2 billion barrels.

So, it looks like this puts an end to the massive property-led boom in that part of the Middle East. The question now is whether this is just a temporary thing and Dubai will recover in 5 years. Unlike many property booms in many regions such as Arizona, California, Ireland, and Iceland, Dubai has actually managed to transform itself into a tourist destination. Its marketing and promotional strategies have been quite effective. Dubai is also in a strategic location between Asia and Europe, so it is the world's "stopover". The thing, though, is that it has mostly catered to the wealthy and super-wealthy. I'm not sure if it has to downshift and try to attract the middle classes because there is the possibility that the wealthy are going to be hit harder than the middle class*.

* I say this because wealth has mostly accrued to the wealthy in the last decade in most parts of the world and with likely capital losses on assets, along with likely higher taxes for the wealthy, I expect them to underperform the middle class. Of course, I'm talking in relative terms; in absolute terms the wealthy will always make more money (eg. a wealthy person earning 5% on their net worth will be more than if a middle class person earned 15% on their net worth.)

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5 Response to Dubai property bubble has possibly burst

December 4, 2008 at 6:45 PM

Whenever Paris HIlton gets involved, it is a top. She was offer a couple million for naming rights to a tower in Dubai. That's when I knew the Fonz had jumped the shark.

December 5, 2008 at 4:18 AM

Look property prices are falling everywhere in the world and Dubai Real Estate is no expection to this. We must also admit that the vaulations were too high and when major financial institutions of the world went bust the ripples would have inevitably led to this condition.

There is no money in the market even if Paris Hilton wants a property or towe in her name.

December 5, 2008 at 10:09 AM

Never heard of that deal. Paris Hilton is smarter than I thought. Certainly smarter than I am. Anyone who makes money off naming rights in Dubai property near the top of a bubble is my hero ;) Actually maybe I should hold off the hero worship until the deal goes through and she collects payment ;)

December 7, 2008 at 10:32 PM

You see the project Shahrukh Khan just financed? I can't wait till Dubai starts taxing and Roger Federer packs his bags.

Seeing entertainers finance projects and signing their names off on buildings is never a good sign, unless they decide to stop reading scripts and replace them with financial statements.

Anyone every find out what happened to George Clooney's condo project in Vegas around 06-07 (not exactly sure when but around the time)?

December 8, 2008 at 7:23 AM


I am agree with you,Dubai property is no expection to this. We must also admit that the vaulations were too high and when major financial institutions of the world went bust the ripples would have inevitably led to this condition.

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