Build it, but will they come?

If people are buying a stake in the community when they acquire property, they should be offered better market information.

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By  Stephen Corley Published  February 26, 2006

|~|steve2-200.jpg|~||~|If people are buying a stake in the community when they acquire property, they should be offered better market information. In a lifetime of memorable phrases, Mark Twain uttered one that has a profound UAE ring about it: “Buy land. They’ve stopped making it”. It would fit in well with the continuing housing market euphoria here, even though it’s not possible for non-nationals to buy land. Yes, we know the law is coming — yawn — but the relentless optimistic predictions for this market beggar belief. In my book, forecasts in this part of the world are dangerous. Instead of predicting the future, I choose to evaluate probabilities. Given the certainty that residential property is as prone to booms and busts as almost any other asset, the probability is that the UAE housing market will turn down, at some stage, dramatically. All the arguments that in 2002 stood clearly as a deterrent to rational analysis of the marketplace still exist and there is an absence of reliable data on how much prices have actually risen. Some estate agents still claim clients make 100% profit on off-plan speculation and many clearly do, but it’s increasingly rare. In a recent article in Britain’s Observer newspaper, a major Dubai agent could not provide any data on price trends. In the Badlands of the Marina development, it’s hard to find a chain of owner occupiers even amongst those properties that actually completed on time, and the advent of increasingly desperate sales schemes from free Jags to no interest loans for seven years hardly inspire confidence. One selling agent admits developers sell some apartments at sub-market prices to encourage sales. Worse still, the recent announcements regarding major road development immediately in the vicinity of a prime Dubai residential development lends credence to the idea that caveat emptor should be in large bold type on all sale agreements. This is not schadenfreude, although I confess to it being one of my favourite sentiments when any asset class gets over hyped. Many good people have bought property in the hope of a more stable existence in this country. As Jack Kemp said: “When people lack jobs, opportunity and ownership of property, they have no stake in their communities”. The trouble is, that hoped-for stake under present circumstances looks to be nothing more than speculation. As I’ve hinted before, this market doesn’t easily accommodate rational analysis. The developers, agents and vested interests exert subtle and not so subtle pressure in this over-hyped and fabricated marketplace. Take these statements from a well-patronised news website, the article itself sponsored by a major developer: “Perhaps those who continue to pay higher and higher rents will be the last to buy, and therefore get the worst of both worlds. It is a feature of marketplaces that those who take the longest time to be convinced often make the worst decisions.” It continued: “So now that we appear to be witnessing a serious correction in the Dubai Financial Market, with shares down 35% since their peak last November, will the smart money move into property and push prices higher? The liquidity and investment model is surely the same as that seen in other similar situations in the past. There is also the fact that by global standards Dubai property is cheap both in terms of absolute price and expected rental yields.” Can we expect the recent sharp bounce in share prices to provoke a rebuttal of that statement and recommend everyone to stay away from residential property? Don’t hold your breath. Published figures for Dubai suggest that in the next three years the major developers will aim to deliver 150,000 units in Dubai. Add into this mix a further 20% from the wannabes and the conservative estimate is for 180,000 new units. With a population of 1.3 million and only an estimated 12% to 15% of that number catered for by the existing rental market, it’s easy to misinterpret cause and effect. Because of the peculiar demographics here, in reality only about 500,000 people are in the market for property. As a result of an influx of migrants over the last two years, a relatively small squeeze caused the phenomenal pressure on rents and they spiralled. However, in the nex two to three years, as the equation changes from, to quote the major developer, “build, build, build to deliver, deliver, deliver”, 180,000 to 200,000 properties are going to be made available. That will require as a minimum, an influx of at least 600,000 new expatriates — of property buying calibre that is. Probability or prediction, I don’t know, but having started with a quotation why not finish with one. Who on earth coined the phrase “as safe as houses”? Stephen Corley is a business consultant specialising in fund management and property. He can be contacted at corley@emirates.net.ae.||**||

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