Wednesday, July 21, 2010

Property in Dubai

I gave far too many figures in my previous post, causing one comment that the post was 'confusing'.

Basically, people who live in ice and snow wanted warm villas for the winter. They poured money into Spain, which was like a firehose pouring into a plastic children's wading pool. They poured money into Greece, which was like a firehose pouring into a bucket. And they poured money into Dubai, which was a thimble that somehow had (or at least claimed to have) 20% of all the world's building cranes.

Rents soared.

Why rents soared in Dubai, other than my firehose-thimble analogy, isn't clear, but outrageous rents supported outrageous prices for freehold property (in the US, property prices were based on the fact that property prices never go down, so banks loaned ridiculous amounts of money to people who couldn't possibly make the loan payments, certain that the property would appreciate enough that the bank would make money when it foreclosed--the usual example being the well-publicised loan for more than $750,000 to a borrower earning less than $15,000 per year, a loan where the bank lost about $800,000 after legal fees when, after the crash, the house was really only worth about $75,000).

All the money came from the US bubble, with people selling worthless CDOs for outrageous prices and looking for somewhere, anywhere, to put the money, and some of it went to Dubai, where it overwhelmed a tiny market.

Then the US seized (actually a very small number of) Muslim bank accounts and other assets for imagined links to terror, and Muslim investors reacting by moving their money from the US to places like Dubai. So more money pouring into a thimble.

And then all the money created with the CDOs evaporated, and things crashed.

Everywhere. Including Dubai.

One comment was 'overbuilding.' But much more was sold than was built. Or even started. Emaar wanted a building to be more than 90% sold before it started construction. Of course, after the crash (and the end of property investor residence visas), many of those who'd put 5% down decided not to throw good money after bad. Or non-existent money after payments from a former salary, now terminated. So when I looked at the Burj Khalifa, I found hundreds of flats listed for sale in the local newspapers. Mostly with Abu Dhabi phone numbers for the sellers.

And I can see lots of towers planned, some of which actually got started before the crash, but very little work in progress, and little chance they'll be finished to flood the market with empty flats and villas.

Not that new towers are needed to flood the market with empty flats, my own building emptied as summer started, and no one seems to be looking.