Radio 2 Jeremy Vine talks about Dubai property crash!

If its in the Telegraph then it must be serious! So serious that Jeremy Vine feels the need to do an article on the Dubai property crash on his show this afternoon.

So why does it matter that Dubai World has asked for a 6 months debt payment freeze - well two reasons, firstly and that's why its in the Telegraph - of the £48 bn that European banks have lent to Dubai World - £30bn has come from UK banks - some of the very same banks that went cap in hand to the Bank of England for funds to stave off bankruptcy.

The second reason is, that whenever I mentioned the unsustainable Dubai property market to those in the business, they often said either "the Dubai Royal Family wouldn't let anything go wrong or Abu Dhabi could underwrite any debt in the UAE". Both the royal family and Abu Dhabi are either unwilling or unable to come up with the cash needed, and if the emirate cannot fund its own debt at home how will it affect UK investment such as a multi billion pound ports project?

According to Gordon Brown, hes had a word and everything will be ok.

What is the reason for time of the announcement, which came out late on Thursday evening? Well - on par with a "good day to bury bad news" - Dubai is on holiday until 6th December!

Combining National Day and the festival of Eid the government and most businesses are off work now until Sunday, 6th. Plenty of time to let the dust (sand) settle. No doubt that's what royal family hopes.

I am reminded by a poem by Shel Silverstein called Smart

My dad gave me one dollar bill
'Cause I'm his smartest son,
And I swapped it for two shiny quarters
'Cause two is more than one!

And then I took the quarters
And traded them to Lou
For three dimes, I guess he don't know
that three is more than two!

Just them, along came old blind Bates
And just 'cause he can't see
He gave me four nickels for my three dimes,
And four is more than three!

And I took the nickels to Hiram Coombs
Down at the seed-feed store,
And the fool gave me five pennies for them,
And five is more than four!

And then I went and showed my dad,
and he go red in the cheeks
And closed his eyes and shook his head
Too proud of me to speak!

The human cost of Living in a property crisis in Dubai

In the latest Sunday Times article written by John Arlidge, he talks about the human aspect of the property crash in Dubai. With Dubai’s strict bankruptcy laws, even bouncing a cheque can bounce you into prison; John takes up the story of professional couple David and Leanne and their four children. David set up is own consultancy and Leanne worked in “human resources” until being made redundant. Almost a year after buying their own property they are preparing to move lock stock and barrel back to the UK. David and Leanne's lawyer thinks its for the best as they will have "a position of strength" to hey negotiate their debts from abroad. In the meantime their bank has cancelled their credit cards.

Even pets are “up for grabs” with notices of pets with the caption “Free to good home”.

Chris Dommett from mortgage brokers, John Charcol says the market is a “classic pyramid scheme”. What surprised me about the article was how well informed everyone seemed to be about the situation, it was no great shock.

For David, Leanne and children it’s the end of their dream, I wonder how they will look back on their experience in Dubai or how they feel by being caught up in a “pyramid scheme”. One thing for is sure, living and working in Dubai will never be the same again.

Dubai on a precipice?

With some analyst predicting a 70% drop in prices in the emirate –what next for Dubai?

UBS reported in April that their research suggested prices have already fallen 25% since their peak last year – unsubstantiated claims say it’s nearer to 40%. Either way, as with the rest of the world real estate in the area has suffered due to the lack of liquidity. Which brings me onto my next point, has the world wide increase in real estate been fuelled by cheap credit rather than organic growth?

This may sound a silly question now, but I asked the very same in 2006 and was pillared by a number of Spanish developers. Many people I know, who sold property in Spain then up sticks and went to Dubai when their market fell.

Remember the claims? The emirate is loaded with oil money, people from all over the world will want to live and do business in Dubai and ultimately, the ruling family won’t let it fail.

Well, as someone far wiser than me once said, “You can’t buck the market”. No matter how much money the ruling family has, no matter how desirable the tax regime is or the positive life style, if there is no work, then there is no desire to be there. The number one job opportunity in Dubai in recent years has been real estate (and associated businesses) – the tales of Porches being left at Dubai International Airport car parks are true!

One overriding principle of investing in real estate is supply and demand. Whilst others will talk about location, I believe it is the very essence of market forces. Too many buyers, prices rise, too many properties, prices fall. It is as simple as that. As for location, well lets face it, unless you are buying on an over crowded island, then it is usually a bargaining chip!

UBS analyst, Saud Masud goes on to say in his report, “We think a 70% fall from peak to trough is not unreasonable, especially given the four years of white-hot growth Dubai has experienced” and in his opinion “we will get closer to market troughs over several quarters out into perhaps 2011”.

Who will take up the slack in Dubai and what are they willing to pay?

Cyprus looks East for new buyers

Cyprus Commerce, Industry & Tourist Minister Antonis Pashalides has suggested that buyers from Iran and other Middle Eastern countries could get a visa for permanent residence if they purchased property worth 350,000 Euros or more. With new carriers to the island from Emirates, Ethiad Airlines and Jazeera Airways, what is the importance of Ryanair’s decision to postpone negotiations with the Cypriot government?

Well it is a hard pill to swallow for many in the UK, but does Cyprus “need” us anymore? Pashalides is looking east rather than west; “Our strategy has been adapted to take into account neighbouring countries for short-range tourism,” said Pashalides, “We are modifying our allocation of marketing resources, advertising, for example – to address these markets.”

What do you think, is Cyprus right to look eastwards rather than rely on recession hit UK?

What is really happening to prices globally?

From my friend, Mathew Pollock of Global Property Guide, prices are pretty much dropping through the floor. Year to end of 2008 are showing a cross the board drops - well almost.

Germany - UP 1.1% from a fall in 2007 of 5.15%. A flat market for much of 2008. An ageing population and steady mortgage rates has helped stabilise prices. A safe harbour in times of storms? Not going to make you a fortune, but you probably wont loose either.

Spain - DOWN -5.8% from a flat rise of 0.78% in 2007. The market can no longer rely on its dependence on "dinero del negro". It is often said that there are more 500 euro notes in Spain than any other EU country - having experienced shoppers paying their groceries with General Franco peseta notes in December 2001 (prior to the Euro) I can well believe the stories. Buying property without fully declaring the price has been almost eradicated since January 2006. This has meant that the full price has skewered the price increase for several years. Spain's geography is going to do more for its economy than anything the government or commerce can offer. From most of Europe it is an easy destination for your holidays. It has the infrastructure and the golf courses now, not some time in the future and that's why with all the over supply in property, I believe it will come back.

Bulgaria - UP 2.25% for 2008, but not as spectacular as 19.8% growth in 2007. This is another country where cash is king and it is well known for developers to accept considerable amounts in cash without registering with the local tax office. The market has continued to rise with nostalgic Russians flooding into the market in 2006 / 07. These nuevo riche Russians have vanished just as quickly as they arrived. Many developers are telling me that they have not seen any clients for months. A lot is riding on the new season. However, the signs do not look good. Although a non Euro country, £1 only buys 2 Lev's and not 3 - 33% drop in value.

Cyprus - UP 1% for 2008, but down from a high of 15% in 2007. Again this country has done well outside the Euro and growth has been amazing up until 2007. The issues now a two fold, one is simple greed of many developers increasing prices and secondly, the Euro has had in my mind a detrimental effect in the short term on prices. A weak sterling has caused all destinations to look more expensive. Cyprus does not have the infrastructure nor the golfing facilities as Spain and yet they expect similar prices.

A note on the Turkish Republic of Northern Cyprus. I recommend that people do not buy in this disputed area.



Turkey - price information is not reliable at present and with inflation at around 9%, it is unlikely that prices have risen substantially about this amount 2008. What is interesting is that many developers do accept sterling helping to make prices attractive. Turkey is never going to take over from Spain or Cyprus in my view, but it is a beautiful place to visit and spend time. Will Turkey join the EU? Who knows, but if they do it is not going to be in the near future!

Out of 36 countries covered by the report only Germany & Cyprus showed a year on year increase for 2008.

Welcome to my blog!

Not the most original beginning I know, but Welcome!
FAQ's
1) Whats this blog about?

Well, about anything to do with residential property either in the UK or further afield.

2) What are you selling?

Nothing. I am offering my advice based only on my experience.

3) What is the point of doing this blog?

Simply to help, if I can. I am not a lawyer or financial advisor. If I am asked my opinion, that's all it is - my opinion.

4) Can others contribute?

Yes - as long as you are not selling anything. This is an advice driven blog ONLY!

Thank you.

Andrew