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CREDIT CRUNCH – READ THIS UPDATE |
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| The Dubai Property Market was affected by the Worldwide Credit Crunch in September 2008. The effect was later but far more rapid than in the West. Since then, the market has stabilised but sales remain lower than pre credit-crunch levels. |
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| Right now there are good deals to be had and some developers are offering good discounts and long payment plans. It is a buyer’s market. However what will the future look like? Is this still the best form of investment for savings? What are the rewards and risks of buying right now? |
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KEY RISK FACTORS |
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| Credit Crunch Effects |
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| What are the effects of the Credit Crunch? Theoretically the credit-crunch should not have affected Dubai (as most property not bank financed) but it has done. Mortgages stopped in October 2008 resulting in a rapid fall in prime property prices. Speculators and short-term buyers were forced out of the market in November 2008. Buyers & investors remain hesitant but are now returning. However, main effect is that NEW property launches have been cancelled (developers are more cautious) – This will result in property shortages in the next few years. Dubai remains desirable for both Eastern and Western buyers, as it is still likely to be the World’s No. 1 City in 15 years time. |
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| Delays |
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| Buyers worry about property construction not starting, thus resulting in delays. Our survey of developers in Early February 2009 showed that they all intend to complete projects that have been launched and in fact want to construct sooner than planned, as current construction costs are lowest right now (steel has halved in price) and these may rise again by next year. However, projects that have already started construction are the least risky with regards to this issue. |
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| Money Security |
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| This is has always been a concern for buyers. However, UAE remains amongst the safest places in the World to buy overseas property. Dubai & Ajman markets are regulated well, Escrow accounts and new rules are being introduced to protect investors even further. |
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| Exchange Rate |
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| Property is always priced in Dirham (AED). The recent weak UK pound means that property prices are higher for those with this currency. However, this also means that rents are higher and when customers sell their property the return and profit in UK £’s is also higher. Exchange rate affects the cash flow but not the overall profitability as things balances out unless you happen to be unlucky! Buy property under your budget, to allow for exchange rate effects on cash flow. |
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| Rentals & Growth |
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| Will my property grow well and will I be able to rent it easily? Rents remain very high and the availability of ready property remains tight compared to demand. With the cancellation of future launches this is likely to remain so. Ready property is easy to rent in UAE. Growth rates are likely to be best for property which is lower priced. Growth is expected to be slow this year, but will be high over next few years as properties will be in short supply. Rental amount in your hand (after agency/our costs) is about 7% of property value at the time. |
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GENERAL ADVICE ABOUT BUYING AFTER CREDIT-CRUNCH |
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| Follow these simple rules and you should reduce your risks and do well. |
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| Buy Under Construction |
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| This reduces the risks of delay, and means you have use of property or rent sooner. Select property that is under construction. |
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| Buy with Long Payment Plan |
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| This reduces your financial risk, currency risk (averages out), and makes a larger property more affordable. It also makes the property easy to sell after completion. If you are an investor you can use rental income to pay for part of the property. It can be tempting to buy from sellers in the resale market but you will need to pay a larger amount or the whole amount upfront. However the overall price can be better and we also have access to such property. |
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| Buy Lower Cost Property |
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| This is likely to grow better and is less risky than a “prime” more expensive property on the seaside. In a downturn, lower cost property will be less affected. |
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| Buy for Long term - Not Short Term. |
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| Long term growth is likely to be good due to likely shortages in a few years. Buying to sell after a few months (as speculators used to do) is highly risky. Most current customers plan to keep their properties and either rent out or use themselves. They should do very well. |
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| Have Sufficient Funding |
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| Do not overstretch yourself. Buy a smaller property or do not buy if you are not sure about your funding. Make sure you have enough to see your property to completion. Think – what would happen if my circumstances changed. If you did run into financial difficulty then the only option would be for us to resell quickly. |
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IS NOW A GOOD TIME TO BUY? - YES |
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It’s A Buyers Market – You can get a good discount from developers right now. This will not be available as their stock of property reduces over the next few months.
Buying Activity has Recently Increased – This means that the best deals will be mopped up within the next few months. At some point it will be a seller’s market. This is likely to be sooner than people expect as there are very few new launches.
Shortage of Property Risk. Developers are more cautious about launching new properties. The property build cycle is 3 years. Many analysts now forecast a severe shortage in a few years time. This should be good for long term investors who buy now.
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TRADITIONAL BENEFITS OF UAE |
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| Here are the traditional UAE rewards and benefits that have not been affected by the credit crunch. The is the reason why immigration is still continuing and why population over the long term will almost double. Every analysts agrees that the country is still on course for long-term success. |
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| 1. UAE is a very rich country with massive reserves surplus in Trillions of dollars (most western countries have deficits) |
| 2. Massive immigration is continuing into UAE from East & West creating REAL DEMAND from real people |
| 3. Tax Free. No income Tax, No Capital Gains Tax. |
| 4. Remains on target to be a world Financial, Business & Trade Centre. |
| 5. On target to be the world’s No.1 Tourism Destination with customers attracted from all over (East, Middle East & West) |
| 6. Overall, set to be the World’s No.1 in 15 years. |
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