In today's edition, The National incorrectly cited a report by Colliers International as saying that Dubai house prices fell by 16 per cent in the second quarter. Colliers actually said the rate of growth in prices slowed to 16 per cent in the second quarter from 43 per cent in the previous quarter. The National also incorrectly quoted the regional director of Colliers International, Ian Albert, as saying that prices had fallen. He said that the rate of growth had slowed. The National regrets the errors.
The rate of growth in Dubai house prices eased to 16 per cent in the second quarter of this year, after rising at 43 per cent in the first three months of 2008, and is expected to remain flat for at least the next 12 months, according to a new report by a leading international property consultant. Issued on the eve of the biggest property exhibition of the year, the report by Colliers International indicates that a six-year-old boom in Dubai's freehold market - which saw prices rising 78 per cent in the year to June - may be slowing.
Cityscape opened its doors to an expected 60,000 visitors yesterday, amid widening uncertainty over the future of the global economy as the credit crunch curbs home buyers' access to capital. Ian Albert, a regional director at Colliers International, attributed the slowdown to "seasonable" trends and a possible inkling among investors of the looming credit crunch. Colliers now expects prices to remain flat until 2010.
Dubai's largest developer, Nakheel, defied the slowdown by launching the world's tallest tower. Nakheel, part of the Dubai World group, unveiled plans to build a tower that will be more than one kilometre high - eclipsing the current tallest tower in the world, Burj Dubai. The Nakheel Harbour and Tower project will be located close to Ibn Battuta Mall on Sheikh Zayed Road, and will also include 40 more skyscrapers set in a network of canals and a harbour.
Nakheel declined to disclose the project's costs, but said it was confident of weathering the financial storm, particularly as the project would be phased over 10 years. "We know that the world is experiencing a financial crisis right now," said Nakheel's chief executive Chris O'Donnell. "But this is just part of a normal economic cycle. It will have an impact on the Middle East but our view is that it will be relatively small as the fundamentals in this market make it stand out compared to other markets. There might be a slowdown but there definitely won't be a crash. We are confident that over 10 years we will be able to finance, build and develop this project."
Colliers said the main threat to house prices was liquidity in the financial system. A shortage of cash has already doubled the interest rate that banks charge each other in the last four months to more than four per cent. Many home finance companies have restricted the amount of money they lend to 65 or 75 per cent of the property's value, and home finance rates have risen to about eight per cent.
"Future performance will be hinged on liquidity," Mr Albert said. "Everyone in Dubai is now looking for the magic figure on how much prices will fall, but because of what's going on in the US and Europe, we won't know where we are in terms of liquidity for at least another two to three months. Prices have so far mainly appreciated through speculation." Colliers said property developments that had previously enjoyed high value appreciation because of an undersupply in the market, and overconfident investors, would have a higher exposure to risk.
In August, the investment bank Morgan Stanley predicted that Dubai house prices would slide 10 per cent by 2010 as the supply of new units was expected to outstrip demand. The Colliers report said about 140,000 new homes would be completed in Dubai by the end of 2010, adding to the existing stock of about 300,000. Dubai prices average Dh1,851 (US$504) per square foot, compares with Dh2,222 in Abu Dhabi.
Although mortgages will be harder to come by, Colliers said demand would remain strong, with the market moving away from off-plan speculation and back to basic fundamentals, such as providing a good quality product. "We expect to see more diligent targeting of the end-user," Mr Albert said. "And strongly differentiated developers with a view to the end-user, and who are able to satisfy the market, will be best placed to deal with any market correction."
With the global financial crisis making investors more cautious, the market is also likely to experience an exodus of speculative buyers and institutional investors as they seek better opportunities in Europe and the US. "High net-worth individuals and institutional investors are becoming increasingly jittery," said Rami Tawfiq, a research manager at Colliers. "They are beginning to pull their money out and are focusing more on the US and European markets, where they can snap up assets at a relatively good price."
This is in contrast to a report by Jones Lang LaSalle earlier this year, which predicted that the number of major global investors in the GCC property market would more than double this year. One of the largest investments to be made by a foreign investor so far in the region is the acquisition of two office buildings at Emaar Business Park in Dubai by AIG Global Real Estate - the real estate development arm of American Insurance Group (AIG), which recently received a bailout from the US government.
AIG is now believed to be looking to sell its assets in Dubai. "In terms of acquisition of real estate assets, there isn't much from institutional investors in this region, except AIG, which is looking to sell," Mr Tawfiq said. Still, the global financial crisis has done nothing to deter UAE developers from planning massive projects at home and abroad. Earlier this month, Limitless announced a Dh2.6 billion venture in Jakarta, and a slew of other developers will announce projects at Cityscape this week.
Al Maabar, the international investment arm of five Abu Dhabi-based developers, said it would go ahead with US$1bn (Dh3.67bn) of property investments in other parts of the Middle East, North Africa and Belarus. @Email:firstname.lastname@example.org