If you've bought property in the UAE these past few years, you have enjoyed a thrilling ride. While no official data on prices exist, reports suggest they have skyrocketed since at least 2006, notching high double-digit returns and beating even some of the world's best performing assets. And according to a recent HSBC report, the sector may still be booming. Prices in Dubai jumped 17 per cent in September alone, it said, after registering gains of 2 per cent and 3 per cent during the summer.
In recent weeks, however, the argument for buying property has become less convincing. One report last month suggested that prices were rising at a slower pace. Meanwhile, some developers have tried to curb speculation, banning investors who were buying apartments off-plan and then selling them in a matter of weeks, sometimes at more than double the price. And in the past few weeks, stories have emerged of cash-strapped buyers unable to meet their monthly payments and builders having trouble selling their units. Deposits on mortgages have gone up, too, because banks and mortgage lenders are finding it harder to borrow money as the global credit crunch stretches into the Middle East.
While discouraging speculation is doubtless a prudent measure in the long run, none of this news bodes well for property buyers. Perhaps even more troubling, though, is the havoc the financial crisis could wreak on property in the Middle East. Most of the demand for property comes from people living outside the UAE - in places such as India, Pakistan and the UK. According to a recent Citibank report, only 24 per cent of those who bought properties from Emaar, the region's largest developer, are UAE citizens. Most come from Asia and Europe.
These investors have seen the value of their global stock portfolios decline dramatically in the wake of the financial crisis. Already, foreign investors on the Dubai Financial Market have been net sellers of local stocks, helping to wipe billions off the value of listed companies. When global markets go belly-up, international investors have less money to throw around on property. At best, that translates into slower sales in booming markets like ours. At worst, it could lead to declines.
So, is the UAE still a good place in which to buy? The answer depends largely on your circumstances - if you are looking for a quick profit by speculating on off-plan property, it's a resounding no. As the Government works to bring a measure of sanity into what had looked like the beginnings of a bubble market - one in which off-plan properties were selling at the same prices as those already completed - speculators will doubtless feel the pinch. A drying up of demand in off-plan units resulting from the Government's actions has already left many speculators stuck with properties they never intended to keep.
"The speculative off-plan end is going quiet, and people who put down 5 per cent deposits and expected to get out quickly are now left with properties they can't sell and can't finance and don't have the cash to make payments on," says Chris Dommett, the chief executive of the property consultancy John Charcol Dubai. "There's going to be a huge oversupply of property in the off-plan market for the next few months. Developers are going to find a lot of product returned to them."
However, Mr Dommett says it makes sense if you are buying because you need a place to live, especially a completed villa or apartment. There is a downside, though: Because of the recent financial turmoil, a lot of banks are asking for a much bigger down payment. Amlak and Tamweel, the UAE's two big mortgage providers, recently raised their minimum down payments to about 25 per cent, and many banks have followed suit. These days, the least you will be able to put down on an apartment or villa is about 15 per cent.
In the end, that is a good thing, because it forces you to start off with enough equity to cushion a possible downturn in property prices. For buyers who are just coming to the country, though, coming up with the necessary cash may be a big issue. If a down payment is what is preventing you from buying, don't worry. Conditions in the lending markets are likely to improve in the next year or so as global credit conditions slowly improve and banks become less hesitant to lend to each other.
Despite the problems that have arisen in the past few weeks, the demographics of the UAE support the argument that you won't lose if you buy property and keep it for a decade or so. The population is steadily ballooning as foreign workers stream in, and those people need a place to live. If anything, the financial crisis may mean more migration because of dimmer job prospects elsewhere. "If you look at the fundamentals and ignore the off-plan speculation, the population is increasing as people arrive here and there's still a shortage of finished product," Mr Dommett says. "The alternative is renting, and rents are not coming down. Although things are quiet at the moment and people will be taking a wait-and-see attitude for the next couple of months, demand for properties to live in is going to be strong, which implies prices will firm up again. The market will have some of the heat taken out of it because you won't see the same amount of speculation as before. But it will still be a good investment." firstname.lastname@example.org