Is Dubai's Property Boom Over or Just Back to Normal?

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(DUBAI, UAE) - For the first time in several years, property prices in Dubai are falling, as much as 19 percent in October over the previous month according to a report issued this week by HSBC Holdings PLC. The lower prices are related to the worldwide credit crisis and to local problems including accusations of corruption at some big developers and mortgage lenders.

But is there a real cause for concern or just a return to a more normal situation? In the past few years, investors have earned as much as 50 percent on quick flips of properties bought off plan, before they were constructed, essentially on drawings and promises of what the building or development would look like.

Often buyers put down a fraction of the total cost, sold the property quickly for much more than they paid out to the next buyer who was likely to do the same thing, creating a chain of fast sales and increasing prices.

Now getting a mortgage is more difficult; according to the HSBC report, average down payments increased by 125 percent in October to more than $220,000 while rates went up as much as two percentage points.

So developers are focusing on selling to end users, people who actually want to live in the property they buy, and also beginning to look at renting and rent to buy as options to keep money flowing.


The situation is forcing developers to take a hard look at their obligations and make some economies. Rumors abound that Emaar Properties, builder of the world's tallest building, is severely cutting its work force.  A spokesman said Thursday, "it is crucial that we use efficiency and maximize productivity, which includes revisiting our recruitment policies, and optimizing human resources."

Nakheel, builder of Palm Jumeirah, said it would focus activity in new island projects like Palm Deira and Palm Jebel Ali closer to the shore and cut back on some other projects.

All this has created worry about the overall economy of Dubai which depends on property as well tourism. Both are likely to decline in a global credit crunch, and Dubai can't count on oil revenues much longer. However, neighboring emirate Abu Dhabi has huge reserves of oil and natural gas and could be expected to help Dubai if liquidity becomes a problem.