The Dean

A US investment bank that is willing to see through the hype.......

Dubai property prices, which have surged 79 percent since the start of 2007, are likely to fall 10 percent by 2010 as supply of real estate units outpaces demand in the Gulf emirate, Morgan Stanley said on Tuesday.
A sharper correction in Dubai's real estate sector could have a ripple effect on its neighbours in the Middle East, with shares of 12 regional property firms dropping an average 35 percent, Morgan Stanley said in a research note.
In a worst-case scenario, Dubai property prices would follow the pattern of Singapore in the late 1990s, when real estate prices plunged 80 percent in 18 months, Morgan Stanley said, calling this a "low probability event".
"We expect oversupply to hit Dubai in 2009, leading to a period of price declines," Morgan Stanley said.
"While we expect these price declines to be limited to Dubai given the level of undersupply in surrounding markets, we cannot rule out a 'contagion' effect on Middle East, North Africa property shares prices, as investor confidence suffers."
The bank initiated coverage of 12 Middle East property firms, including the region's largest by market value, Emaar Properties whose shares trade more than 100 percent below Morgan Stanley's 21.4 dirham ($5.83) target price.
Home to man-made palm-shaped islands and an indoor ski slope in the desert, Dubai kicked off a regional property boom in 2002 when it first invited foreigners to invest in real estate.
Since then, regional economic growth supported by a six-fold rise in oil prices has attracted streams of investors.
Last month, Standard Chartered Bank said Dubai was overheating because speculators were inflating prices of real estate still under construction. It recommended the emirate introduce a capital gains tax to deter short-term investors.
According to Morgan Stanley's price index, Dubai property prices soared 25 percent in the first half of 2008, and are up 79 percent since the beginning of 2007.
"Prices have been driven by a combination of genuine demand, speculation and, most recently, escalating construction costs," it said.
"For 2009, we expect prices to start coming under pressure as oversupply becomes evident. We forecast a 10-percent decline between 2008 and 2010 in our base case."
Some developers in Dubai are trying to weed out short-term investors.
Palm island developer Nakheel is requiring buyers at its Trump International Hotel to wait a year before they can sell their units on the secondary market, UAE daily The National reported on Tuesday.
While Dubai is the "bellwether" for the Gulf property market, slight easing of prices in the emirate may not impact Abu Dhabi and Qatar, whose property sectors should remain under-supplied until at least 2012, Morgan Stanley added.

Spugsy

christ, put some paragraph spaces in will you mate? my eyes almost collided reading that...

Confucius

There is already a huge oversupply of apartments and houses to sell...It's been the case since more than 2 years now...
GN Freehold and Properties section is thicker than and elephant's leg...

arbroath_abroad

or a horses knob?

Confucius

Its thicker than the knob of two horses...Happy now???

Eeyore

I wonder if Morgan Stanley has anything to say about the deliberate manipulation of the market, including the current large-scale holdback of completed properties in order to ensure that supply artificially lags behind demand?

Eva

Successful Co's don't have to answer.
MS has moved on to Brand India.....the only place 'probably' and 'currently' with higher rental returns than AD.

Charismatic

This will only work if:
1. You can increase the demand to meet or exceed supply.
2. You can decrease the supply to a level where demand meets or exceeds it.

Translation: They are shagged if they have all their capital tied up in cyclical markets (like property) if it falls.

Spugsy

-

Charismatic

He's not implicating any given company or individual.

Spugsy

ah..

Norm_uk

Every property market in the world moves in cycles...short term gains in property are signs of a boom - and no boom last forever.

Virtually the same think happened in Florida about 80 years ago - it will have to happen in Dubai too...because there is only so much someone is willing to pay for a certain type of property. Once that threshold is reached all these investors will sell up asap because they will be afraid of losing their investment.

N.

Eeyore

It's been happening in Florida in the last year or two as well - Florida was where the current property crash in the USA began.

Las Vegas is another good example. For quite a few years, starting in the late 90s/early 00s, it was the fastest-growing city in the USA, with people flooding in to live and work, and property prices skyrocketed, fuelled by no little speculation. Now the boom's gone bust, and like Florida, it's one of the places hardest hit.

admon

But will this happen?
Investors here seem to have thicker skin (or brains?) than a crocodile..

There is no sanity that an investor pays for a floor of an apartment building, leaves it empty while paying service charges and appears under zero pressure to either realise his capital investment, or at least service some of the cost by renting the properties out.

Will the investors even realise when it is time to sell? ..I think not

I honestly think that it will only be when the ship of Dubai is sinking faster than the titannic will there only then be a realisation from these types of investors that they need to sell.

The whole situation to me is bizarre.
At the end of the day, even if you are laundering money - surely the intention is to see some money at the end of the process.

If investors keep doing what they are doing, there will be the situation in 25-30 years time where towers are being pulled down when they have reached the end of their economically servicable life - and they will have been barely lived in..

As I have said many a time before - common sense just doesn't seem to apply in Dubai property.

Border Reiver

Can somebody who is better at maths than me (that would be just about everybody) explain how a share can trade at 100% below a target price? Wouldn't it have to be worth zero to do that? So, this is an investment bank that can't do percentages. No wonder the American economy is in a mess.

I'm still pretty positive about the whole property market- I don't think a 10% drop in prices by 2010 is out of the question at all but that still doesn't meet my definition of a crash. I'm in it for the long haul and as has already been mentioned the market is cyclical so I'm confident it will go back up again and hopefully achieve a bit more stability in the process.

If the political will is there it is very easy to deter the speculators by introducing some form of capital gains tax, but I'm not sure the political will is there. The market could also be stimulated (if required) by dropping interest rates which are very high compared to the US.

Anyway, at the moment I'm selling one of my apartments in Dubai and taking the money back to the UK to invest there, even with the lousy exchange rate. It's a bit like trying to catch a falling knife but I think in the next 12 months or so the UK property market will represent better value for money (read, return on investment) than the Dubai market. But I have been wrong before, and just in case I am I'm still keeping a couple of places in Dubai as well.