For those who missed the last Dubai Property Society
event, you missed a fascinating speech and following debate on the
cause and impact of the Financial Sector on the Real Estate industry. I
can hardly do credit to Ali Al Shihabi’s understanding and depth of the
situation, but I’ve summarized the main points below:
What caused the slow down?
- Early 2008 - Talk of revaluation of Dirham vs. US
dollar flooded Dubai with money from financial institutions looking to
make a quick gain. Local UAE banks in turn provided financing based on
these deposits, and when International funds decided to pull out a few
months later local banks had their own mini credit crunch.
- Mid-Late 2008 - The world banks had the much
publicized credit crunch, compounding the already tight situation in
Dubai, leaving banks with less deposits than loans.
- Late 2008 - Stock markets declined, causing a fall in available funds to individuals and corporations alike.
Combine these three points and we see the financial sector
tightening up, making lending prerequisites tougher and dropping the
total percentage they will lend to individuals. This in turn makes it
harder to purchase property and leaves speculators scrambling to
offload their investments.
Are we doomed? No!
- Look worldwide and look at the UAE, or even the GCC compared to
other world markets. The GCC is in the strongest position to ride out
the credit crunch wave with a strong surplus of cash left over from the
recent spike in oil prices. With these funds the UAE federal government has guaranteed deposits for 3 years in all UAE banks and thus provides a level of comfort for the UAE Banking sector that other markets do not enjoy.
- Al Shihabi argued that the UAE moved very fast to protect the banks
but the recent ’slow down’ is due to communication and that this
security has not been communicated as well as is should have been in
the media. In comparison, governments elsewhere do not have the massive
financial backing that the GCC has, and Al Shihabi believes that the
UAE market will recover faster than others.
So what does this mean for projects in the UAE?
- Real estate projects which have already commenced and which have
full commitments from the banking system will continue during this
initial drop and the public will eventually see that these projects
will continue construction and confidence will grow. There may be some
delays, but that will only reduce the potential oversupply and keep
prices stable.
- The so called “paper market” - projects only in the planning stages
- will have difficulty getting the financing to fund these new
developments, and will be a risk to any investor.
What about Dubai in general?
- Dubai has a underlying business model that is great and
sustainable. It has tourism, it has a thriving business sector, it has
a strong world renowned airline and it’s growing. The fundamental
problem with Dubai is transparency. In order for the public to feel
more secure, reputable data needs to be released in order to inspire
confidence. It is better that the bubble burst now and not in 5 years
as the market could benefit from more affordable prices. Existing
projects will benefit and established real estate brokers will have
work hard to stay afloat over the short downturn.
- Al Shihabi argued that with all things considered this downturn is
healthy for the market and it will separate the good from the bad.
So what does this mean for me as a broker/developer?
Get organized, use this time to clean house and find ways to save
money. This can be done by reducing overheads, but depending on your
business can also mean being more productive with your current staff.
Efficiency drives profitability, and focusing on the finer elements of
your business can ultimately help save you money.
Of course, Masterkey can save you money as well, so plan now for the Dubai comeback.
Daniel Hart
Director of Business Development
Masterkey
www.gomasterkey.com
More about Mr. Ali Al Shihabi al Shihabi of Rasmala
Mr. al Shihabi established Rasmala Investments in 2002. Prior to that
he had been a member of the Board of Directors of the Saudi Hollandi
Bank, and Chairman of the Board Management Committee. Mr. al Shihabi is
a member of the board of the National Bank of Ras Al Khaimah (RAK
Bank). He holds a BA from Princeton University and an MBA from Harvard
Business School.
