For about a couple years, I have been writing that Dubai was on the brink of collapse and mentioned the The Skyscraper Curse which I find to be very compelling.
Just a month ago, I wrote a post titled Some of Dubai's Office Buildings Will Be Empty Forever concluding that I wouldn't be surprised to see another 30 to 50% decline from here, in Dubai.
Here are some quotes from a Bloomberg report, giving more up to date information about the state of collapse in Dubai.
Dec. 15 (Bloomberg) -- Dubai property prices may drop for the next two years, extending a decline in the Persian Gulf sheikhdom that’s already cut values by more than 60 percent since the 2008 peak.12 percent is quite a big number. I'd be curious to find out what's the current vacancy rate on existing properties.
Residential values may fall as much as 20 percent more by the end of 2012 if new homes are built as planned, according to broker Landmark Advisory in Dubai. Cluttons LLP, a London-based property consultant, and Jones Lang LaSalle Inc., the second- largest publicly traded commercial property broker, also forecast further declines.
About 48,000 homes will come on to the market in the next two years, or about 12 percent of existing supply, according to Jesse Downs, director of research at Landmark. An influx of foreign buyers sparked a construction boom as prices rose by 79 percent to mid-2008 from 2007 before the financial crisis caused lenders to tighten credit and speculators left the market.
“There is still no parity between supply and demand,” said Paul Richard, associate director at Cluttons in Dubai, which estimates that 35,000 homes will be completed through 2012. “You’re looking at a good two years” for Dubai’s market to reach bottom, he said.Well, that's actually a good news. It means that less money and resources are going to be wasted.
[...] Home prices fell 6 percent in the quarter from the previous three months, Colliers International said on Nov. 7.
Almost half of Dubai’s planned real estate projects, from offices to villas, were canceled as buyers defaulted and access to funding became harder. Residents who lost their jobs had to leave the country within 30 days, causing many to abandon their cars and mortgages.
Emaar Chairman Mohamed Alabbar said last month that Dubai’s market has bottomed out “without a doubt,” and “not much” new housing supply is coming on the market.Economists are always making over optimistic predictions. No surprises here. But of course, no one is going to question the predictions of growth in the US and the rest of Europe, or profits and equity increases, etc.
Predictions of an end to the slump have proven overly optimistic in the past. In May 2009, Markus Giebel, then the chief executive officer of Deyaar, said the property market would bottom out that year. In the same month, Landmark Advisory said home values may stop sliding in the fourth quarter of 2009.
“Without an influx of demand from outside the country, forget about it,” Cluttons’s Richard said. He estimates that home prices will drop 5 percent to 10 percent by next summer.That was a very "clever" move indeed. I never understood why people would ever want to live in Dubai, except for making a lot of cash for a few years. But now, with a 6 month visa and more than $500 to renew it, it's become a hassle. Basically, they don't want to create an income tax, so they've came up with this hidden "residency tax" of $1000 per annum. Add admin and bureaucracy on top...
Attracting foreigners became more challenging after the government changed residency rules last year. From 2002, property ownership qualified the buyer for a five-year residency visa that was easily renewed. That changed in May 2009, when new United Arab Emirates regulations cut the length of residency visas to six months and required holders to leave the country and return for renewals, paying 2,000 dirhams ($546) per visa each time.
“The visa rules have been highly damaging and definitely shattered people’s confidence,” said Ludmila Yamalova, a partner at law firm HPL Yamalova & Plewka JLT. “Many bought property just because that would enable them to live here. They had their five-year residency and built their lives around it. Now they don’t have that security.”Well, it was very clever to take a 25 or 30 year mortgage to get a 5 year residency in the first place. Things change, specially governmental promises: they never keep up their words.
[...] Downs predicts home prices will drop 15 percent to 20 percent by 2012 if the most residential buildings currently under construction go onto the market as scheduled.
“If the pipeline is delayed, that will only prolong the cycle,” she said. Properties won’t see renewed demand “until prices come down further and buyers have greater certainty over long-term rent yields.”