Tuesday, October 28, 2008

Dubai: A Cataclysmic Disaster Waiting to Happen

Dubai's hyperinflated real estate market is about to implode or blow up in the faces of speculators. Sales are collapsing and the global downturn in the UAE, whose currency is linked to the US dollar, is going to be a reluctant victim of a cataclysmic disaster.

Desperate sellers are now selling off their pre-booking investments at zero premium. Commissions of agents are down up to 70 percent, and six months may be just about the time that investors may have to bail out of risky real estate investments.

Real estate companies like Emaar have seen their value erode 62 percent since the beginning of the year, and the Dubai Financial markets, which is the barometer of the financial health of the country has slumped 48 percent. Colliers International earlier revealed growth of property prices in Dubai slowed to 16 percent in the second quarter of 2008 from 42 percent in the first quarter. Morgan Stanley warned in August that property hotspot Dubai could see a 10 percent fall in prices by 2010. Perhaps this was an understatement.

What makes Dubai vulnerable is that it has zilch oil, and it had charted itself a course of becoming a property and construction hub for the entire Middle East. Dubai was expecting foreigners to come in and buy up apartments and commercial space, but for a country that depends 30% on construction economy is now on a verge of a cataclysmic disaster.

Read the story here

Posted by Eclectic Investor at 12:41 PM  

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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