When a boom turns to bust, buyers tend to avoid the property market as if it has been universally hit with dry rot. Prices plummet, especially on the secondary market. This has happened in the West during the financial crisis and filtered through to major economies in Asia such as China and Japan. Even the market in the UAE has started to soften, with prices in Downtown Burj Dubai falling by an average of 22 per cent in the past few months, according to brokers.
"There is a lot of fear in the market," said Robert McKinnon, an analyst at Al Mal Capital. "A lot of it is probably overblown but it is having a real impact." Concerns arose at the soaring costs of property in the Emirates after prices jumped by 43 per cent in the first quarter of this year, according to Colliers International. But while there has been a distinct slowdown in the past two months, the UAE should be able to bounce back. The country may be experiencing its first property wobble, with big developers scaling back projects and laying off staff, but analysts still see great opportunities for people who are looking to buy a home to live in.
Better still, they foresee a leaner, more realistic property sector that is tied to the forces of supply and demand. "Buyers will, for once, be able to find a few bargains around," said John McGaw, the chief executive of the regional office of Killik & Co. "There will be quite a few forced sellers who can't afford their payments. They will just want to get rid of the property, even at a loss." The case for the security of the medium-term and long-term property market is fairly simple. There is enough oil in the UAE for another century, guaranteeing the Government enough cash to keep the economy ticking over. Property would still be in demand by companies setting up or expanding here and wealthy Middle Eastern buyers who want to spend time in the Emirates. And because supply does not go close to meeting the existing market demand, rental yields will remain high for years and prices will see healthy growth.
The key for buyers is to be aware of the changed market. Speculators - love them or hate them - are gone. This makes off-plan property more risky. Many projects, especially in Dubai, were launched and sold out to speculators in a matter of days. But a group of those buyers - nobody is sure how big - are now having trouble paying their instalments, leading developers to consider cancelling or delaying projects.
"Off-plan is a problem," Mr McGaw said. "You are not quite sure if the building is going to materialise or not." So a key strategy in buying in this market is assessing how far advanced a development is in construction and whether the developer is likely to cancel or delay the project. Some developers, such as Aldar Properties in Abu Dhabi, say they have enough financing to cover their current project list. In a research note last week, HSBC called the company "the best shelter for investors" and likely to provide "good appreciation potential". Still, much of its portfolio is still under construction and will not be ready for occupation until next year.
The fact that speculators were gone was a good indicator that the market was getting healthier, said Adel Lootah, the executive director of the Dubai Property Society. "Whatever buyers we are left with are real buyers," he said. "They know what they are doing. They look at the long term. This is very good." Mr Lootah said the market "is in good condition, but for a different set of people". "Now is the time for the people who were the bystanders when everyone else was buying. They were waiting for the right opportunity."
The problem, even for these buyers, is raising finance. Banks are now lending on much tighter terms - as low as 50 and 60 per cent of purchase price in some cases - which means buyers need a lot more of their own money to get into the market. Lloyds TSB has stopped lending altogether for UAE apartment purchases. "This is the biggest problem right now for everyone," said Chris Dommett, the chief executive of the mortgage advisory service John Charcol in Dubai. "You need to have a lot of money and some courage to buy right now."
Emaar Properties is endeavouring to make life easier for "stronger" buyers - people with good credit records and an interest in the long term. Last week the firm announced two new payment plans. Under "plan to own", buyers can put down 5 per cent, delay their 25 per cent downpayment for five years and get the rest of the money from a lender. Under the "rent to own" scheme, a buyer can contribute the first year of rent toward purchase of the apartment if they decide within 10 months to buy.
Iseeb Rehman, the managing director of Sherwoods Independent Property Consultants, said the move was smart because "the market has changed". "They made it clear they are committed to help the end-users," he said. "It can hopefully get sales going again." Of course, the property adages still apply. Location is still a key factor in picking a place to live or invest. If you buy an apartment on Reem Island or Palm Jebel Ali, you are not likely to see your home for at least a year and, even then, much of the islands will still be a construction site. This could hit your quality of living or your rental income, especially if transport is difficult.
And quality has become the golden word again, said Andrew Greaves, a partner at Trowers & Hamlins. "Quality to some extent has suffered in the region because of a drive to rationalise speed and quality of delivery," he said. "If one market is better positioned to ride out the credit crunch it's the Middle East. Yes, we're in a period where we have to be very cautious, but there are certainly opportunities for expansion in the region."
@Email:firstname.lastname@example.org * additional reporting by Angela Giuffrida