DFM crosses 450 (in the right direction)
Today, the DFM is up sharply, crossing 450, promising continued gains for the short to medium term.
But also today, Secret Dubai linked to the May, 2005 article by Matein Khalid
which pointed out that the Dubai Marina was mostly deserted.
Since the Dubai Marina is (more or less) beachfront, Mr. Khalid said it should sell for about four times as much as inland developments such as The Meadows, but was selling for eight times, and should therefore fall by about 50% sometime in 2007.
The impact on Emaar and the DFM is not clear. Certainly, if the Marina drops 50%, some of the panic will spill over to other developments, but much of Emaar’s developments are outside the Marina.
As the article says, there are a lot of dodgy developers; however, failure of these developers could impact Emaar’s share price in either direction, driving a general decline, or a flight to quality.
But failure by dodgy developers will have an unambiguous impact on any mortgage lenders who financed their developments, and these comprise a significant segment of the DFM.
The article also counted available residences in Dubai, and estimated that there were about 30% more people who wanted a residence in 2005 than there were available residences; however, with developments in the pipeline for 2007 that number 133% of the current residential properties, Mr. Khalid couldn’t see any way to fill them in 2007.
Assuming most investors who purchased properties planned to sell before completion, and assuming there will be an insufficient number of people willing to purchase from those investors, a major panic could easily ensue in the next 15 months.
For investors who did not purchase with 10% down in order to sell at a premium before the next instalment was due, current rent controls provide some cushion:
In summer, 2005, the Emaar developments in the Springs and Meadows were renting for about 60% of current rents; honest landlords, however, cannot raise rents on continuing tenants more than 15%. Hence, a drop of as much as 25% in rents would not affect these landlords, who would be able to increase rents by 4% next year.
And rents at 2005 levels were enough to drive longer-term investors to buy Emaar properties at prices that provided Emaar with a good profit. A 25% drop in rents from current levels would still leave rents 20% higher than in 2005, which would still be enough to support Emaar stock prices at above current levels.
One further factor: the increase in residential properties by 133% in 2007 is based on stated completion dates, something which never happens in this part of the world.
Which would postpone the predicted property collapse until 2008 or 2009.
(Caution: Stock Markets tend to drop about six months before any foreseen disaster, and a property collapse is rather clearly forseen, but the exact date remains murky.)
But also today, Secret Dubai linked to the May, 2005 article by Matein Khalid
which pointed out that the Dubai Marina was mostly deserted.
Since the Dubai Marina is (more or less) beachfront, Mr. Khalid said it should sell for about four times as much as inland developments such as The Meadows, but was selling for eight times, and should therefore fall by about 50% sometime in 2007.
The impact on Emaar and the DFM is not clear. Certainly, if the Marina drops 50%, some of the panic will spill over to other developments, but much of Emaar’s developments are outside the Marina.
As the article says, there are a lot of dodgy developers; however, failure of these developers could impact Emaar’s share price in either direction, driving a general decline, or a flight to quality.
But failure by dodgy developers will have an unambiguous impact on any mortgage lenders who financed their developments, and these comprise a significant segment of the DFM.
The article also counted available residences in Dubai, and estimated that there were about 30% more people who wanted a residence in 2005 than there were available residences; however, with developments in the pipeline for 2007 that number 133% of the current residential properties, Mr. Khalid couldn’t see any way to fill them in 2007.
Assuming most investors who purchased properties planned to sell before completion, and assuming there will be an insufficient number of people willing to purchase from those investors, a major panic could easily ensue in the next 15 months.
For investors who did not purchase with 10% down in order to sell at a premium before the next instalment was due, current rent controls provide some cushion:
In summer, 2005, the Emaar developments in the Springs and Meadows were renting for about 60% of current rents; honest landlords, however, cannot raise rents on continuing tenants more than 15%. Hence, a drop of as much as 25% in rents would not affect these landlords, who would be able to increase rents by 4% next year.
And rents at 2005 levels were enough to drive longer-term investors to buy Emaar properties at prices that provided Emaar with a good profit. A 25% drop in rents from current levels would still leave rents 20% higher than in 2005, which would still be enough to support Emaar stock prices at above current levels.
One further factor: the increase in residential properties by 133% in 2007 is based on stated completion dates, something which never happens in this part of the world.
Which would postpone the predicted property collapse until 2008 or 2009.
(Caution: Stock Markets tend to drop about six months before any foreseen disaster, and a property collapse is rather clearly forseen, but the exact date remains murky.)
posted by Dubai@Random at 6:22 pm
2 Comments:
I was at the Marina the other night, and even in the main, Marina towers - which I believe were all sold out years back - there were barely any lights on. Less than 10% of apartments were illuminated. This was a Thursday night (I think) around 7.30pm.
So whoever is buying them is not necessarily living in them. And if they have been bought speculatively, that bodes very ill for the longer-term property market.
Secret Dubai: As I put in an earlier post, M&J have posted as comments to my blog that they live in the Marina, and that it's mostly deserted, meaning either a) it's owned by the very rich who bought it to use a few weeks of the year; or b) (more likely) that it is mostly owned by speculators who must be getting more and more desperate to unload.
Some speculators are more equal than others. An ex-pat stood in line overnight (as part of his job) only to be told that the entire development had been sold out before the official opening (to people like the Sooners in the US Oklahoma Territory). Some who put 10% down found they had to put up the remaining 90% before they could sell, and lost their deposits; others apparently aren't being pressured to come up with the rest until they can sell at a premium. These may be able to hold on for some time.
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