Property prices in Dubai and Abu Dhabi have fallen for the first time on the secondary market as speculators struggle to meet instalment plans, while buyers have disappeared for lack of financing.
Off-plan properties that are still under construction have been hardest hit by the downturn, which has emerged only in the past week, but sales of all types of property have slowed to a near standstill as uncertainty grows over the health of the global economy.
"It has been going on for a week now. I have seen prices going down about 10 per cent everywhere, even in Dubai Marina and Downtown Burj Dubai," said Khaled Elqassim, the sales manager at AAA, a Dubai-based property broker.
"Pretty much all the secondary market is trading at less than it was before the financial crisis," said Karen Lay, the marketing manager at LLJ Properties in Abu Dhabi.
The selling pressure is strongest from speculators who secured finance only for one or two instalments, sometimes through personal loans, hoping to sell at a profit. These sellers are now marking down their offers to find buyers, who in turn face difficulty securing loans. Home finance providers have tightened lending criteria and now offer only about 65 per cent of sale value, compared with 90 per cent just two months ago.
"If they can't afford the next payment and can't sell the property they invested in, they might find themselves in trouble," said Walter Hart, the managing director of Humberts International, a broker who recently entered the market.
Many property professionals had expected prices to rise substantially after Cityscape Dubai, the world's largest real estate investment and development event, at the beginning of the month, but instead many agents' telephones have gone unusually quiet.
"Nobody is interested in off-plan any more. Our phones are quiet most of the time. We haven't felt the Cityscape effect," Mr Elqassim said.
Another sales agent said: "Usually we sell around 120 units a month, but we haven't reached a dozen in October yet. I can tell you that nobody is selling here at the moment. We have been seeing an increase in the number of sellers and a sharp drop in the number of buyers."
Some owners who have met difficulties in paying their instalments to developers have asked for a postponement or rescheduling, property executives said. "I have even seen many of them already submitting forfeitures," said a legal adviser at AAA Lords. He added that some developers were becoming more lenient with buyers as sales had dropped to half the usual levels.
Developers offering properties for the first time directly to investors had not yet reduced their prices, because they were not under the same pressure as retail investors, brokers added.
"Some people on the resale market are reducing their margins because they want to sell. But I haven't seen any reduced prices from developers," said Mohammed Guidoum, the chief executive of Remax, an Abu Dhabi-based broker. "People who cannot afford to pay the second or third payment, they need to sell. But people who are comfortable with their future payments or have a mortgage, they are not concerned."
Fran Wheatley, a broker with Landmark Properties in Dubai, said prices were falling in many different areas including Downtown Burj Dubai, plus some projects in Dubailand and Al Furjan.
Munther al Bakri, a broker at Gravity Real Estate in Abu Dhabi, said prices in two Manazel developments were falling. "People are reducing their premiums. In Building Material City in Abu Dhabi, people who were making 15 to 16 per cent premiums are now getting nine per cent."
In its Al Reef development in Abu Dhabi, a two-bedroom villa that sold last month for Dh2 million (US$544,000) was now for sale at Dh1.75m, he said.
Most property owners are still looking at a big profit, depending on when they bought. But for those who have just bought into the market, the outlook is far from certain.
"We are seeing people selling at the original price, just to get out of the market," an agent from Hamptons said.
Selling pressure was greatest in the off-plan market, while completed properties were somewhat protected, agents said. Demand is greater in this segment because new residents are still demanding rental accommodation or buying property to live in to escape high rents.
Rents have increased 22 per cent in Dubai, and 64 per cent in Abu Dhabi in the past 12 months.
"Dubai is an attractive place to come and live in, more than ever before. People who are coming here for new opportunities all need to live somewhere," said Vincent Easton, the head of sales at Sherwoods.
Some brokers tried to put a positive spin on the price drops, predicting that they might recover soon.
Andrew Covill, the head of sales at Abu Dhabi-based LLJ Properties, said: "some people are not really informed of the situation and think they need to sell. Now is not a time to sell, it's a time to invest for the future. There are fantastic deals out there. There is more choice for the buyers."
ngillet@thenational.ae
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
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- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
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If you go
The flights
The closest international airport for those travelling from the UAE is Denver, Colorado. British Airways (www.ba.com) flies from the UAE via London from Dh3,700 return, including taxes. From there, transfers can be arranged to the ranch or it’s a seven-hour drive. Alternatively, take an internal flight to the counties of Cody, Casper, or Billings
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Red Reflet offers a series of packages, with prices varying depending on season. All meals and activities are included, with prices starting from US$2,218 (Dh7,150) per person for a minimum stay of three nights, including taxes. For more information, visit red-reflet-ranch.net.
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The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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The view from The National
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
THE SPECS
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