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Wednesday, December 16, 2009

Bargain Hunters Take a Look at Dubai


source The Wall Street Journal

Real-Estate Brokers Say Dubai World's Woes Have Sparked Interest for Deals as Prices Remain Off Their 2008 Peak

DUBAI—Amid international worry over Dubai's debt load, property investors are giving this city-state a second look.

Last month, Dubai sent global markets into a swoon after announcing a standstill to debt payments for its flagship corporation, Dubai World. The group said it would seek to restructure $26 billion in debt, including that at two of its property developers, which have been caught in a real-estate crisis. This week, Abu Dhabi stepped in with a $10 billion bailout for the conglomerate, which has helped ease concerns over Dubai's debt levels.

Though a property-price rebound may be years away, real-estate brokers said the international headlines have triggered a bout of interest by bargain hunters.

The Atlantis Hotel overlooks the Palm Jumeirah, where prices for luxury villas are moving up off their lows.

After the emirate opened parts of its property market to foreign buyers in 2002, prices climbed, fueled by speculative buyers, over-the-top development and light regulation.

Today's prices are back at 2007 levels, about 50% lower on average in many cases than the market's peak in 2008. That is a buying opportunity for many.

Emirati businessman Obeid Mohammed recently bought four villas for a total of $1.7 million, just a little shy of half the $3.3 million he would have paid at the peak. He said he is looking for more deals.

"If I find a good location and a good investment, absolutely I'm going to buy," he said. "Dubai is one of the great cities in the world. It's like New York. New York is New York, even if it falls down, it's New York. Well, Dubai is Dubai."

Tom Bunker, a sales consultant at Betterhomes, one of Dubai's largest real-estate brokers, said, "There is a renewed sense of interest in Dubai."

Mr. Bunker said property on the Palm Jumeirah, the palm-tree-shaped island packed with luxury villas and unfinished hotels, is attracting the most attention. Prices are rising from their lows, he said.

A three-bedroom apartment on the Palm listed for just over $1 million at the height of the boom. It fell as low as $700,000 and is now being listed at almost $850,000.

Brokers said potential buyers are looking at the emirate as a long-term investment and a place to settle down, rather than a chance to make a quick return.

"Speculators left the market a long time ago," said Vincent Easton, sales director at the Dubai office of the Engel & Volkers property agency.

The latest quarterly Knight Frank Global House Price Index, published last week, said Dubai's was the worst performing real-estate market in the world this year. But in the months just ahead of the Dubai World announcement, prices had been showing signs of stabilization, even modestly recovering in some developments.

Property consultancy Colliers International in November said prices for residential property at developments open to foreigners climbed 7% in the third quarter, the first rise since the start of the slump.

The consultancy also said the number of market transactions rose 64% during the quarter compared with the three months to June.

Amid the downturn, activity in the emirate's rental market, where prices also have slumped close to 50%, has remained steady, brokers said. Betterhomes said its leasing transactions rose 8% from October to November.

Still, analysts and even some normally exuberant real-estate executives don't predict a quick recovery, with many saying it could take years to see 2008 prices again.

Dubai's debt woes could slow any recovery by sapping confidence and drying up local credit on default worries. Experts cite oversupply and the lack of liquidity as the biggest concerns for 2010.

In October, investment bank UBS predicted that prices could slip a further 30% over the next 18 months and may take at least 10 years to recover to peak levels. The bank said it is unlikely to change this estimate.

Despite that, some overseas buyers are trawling the Internet to see what bargains are available.

Rightmove Overseas, the international arm of British property Web site Rightmove, recorded an almost threefold rise in the number of searches for property in the emirate in the days following the Dubai World news, compared with the previous week.

"It's driven by the curious, looking to see what their money could buy," said Robin Wilson, head of overseas property for Rightmove.

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