Survey Signals Dubai Housing Boom Has Ended

DUBAI -- This city's six-year property boom appears finally to be over, with asking prices for some homes here falling as much as 19% in October from the previous month, according to a closely followed survey.

Home prices were climbing sharply as recently as the first half of this year. But over the summer and fall, tightened local lending collided with the global financial crisis to choke off easy credit. That scared away buyers, especially local and international property speculators who have helped fan years of price increases.

Other factors were at work. Dubai has been rocked by a series of arrests and probes at several big property developers and financial institutions. No charges have been filed, but the dragnet alarmed investors. Government officials themselves moved to tighten regulations in order to slow down run-away.

Analysts at HSBC Holdings PLC said Wednesday that average asking prices for homes in Dubai fell 4% in October from September. Advertised prices for upscale Dubai "villas"--typically stand-alone homes in a master development--fell by 19% month-on-month, the bank found. In next-door emirate Abu Dhabi, average home prices fell 5%.

The report included only prices for the so-called secondary market. That includes second-hand homes. But it also includes unfinished property that investors bought from developers in the hope of selling again quickly for a profit. The report didn't include prices for property sold directly by developers.

Property agents here have been warning of softening prices and disappearing buyers for weeks. But the HSBC report provided the first quantitative evidence of a significant correction. The bank warned of "protracted weakness should lending practices remain in place for awhile."

Banks have significantly tightened lending—requiring bigger down-payments and increasing mortgage rates. HSBC said the average down payment increased 125% in the month, to more than $220,000. Mortgage rates increased by as much as 200 basis points.

Dubai's economy is significantly dependent on its property market, which the government opened to foreign investors in certain developments in 2002. A handful of government-owned or controlled developers have borrowed heavily amid a construction boom.

In today's global credit crisis, they may have difficulty raising fresh funds if revenues decline significantly in the current property-market downturn. Local banks and financial firms, many also partly government owned, have lent significantly to developers and investors.

That has raised larger fears about Dubai's ability to repay its ballooning debt. The city-state doesn't have the large reserves of oil that many of its Middle East neighbors enjoy. Instead, Dubai has financed its economic diversification in recent years with massive international borrowing by the government and by government-controlled corporations.

Dubai officials have said repeatedly in recent weeks that government finances are sound. Analysts say the oil-rich federal government of the United Arab Emirates, based in Abu Dhabi, would lend a lifeline in a crisis.

Dubai stocks have taken a pounding, driven down by property and financial shares. The Dubai Financial Market finished Wednesday down 62.7% year-to-date. Shares in Emaar Properties PJSC, a partly government-owned developer that is building the world's tallest skyscraper here, finished down almost 79% from its 52-week high in January.

The government and developers have scrambled to reassure investors. On Wednesday, Emaar said in a statement it would relax payment plans for customers in a bid to attract new buyers. Emaar's chairman, who is also part of the Dubai government, said earlier this week the emirate had established a committee to study ways to bolster confidence in the market. An Emaar spokesperson didn't immediately return phone and email messages.

Author: Chip Cummins at chip.cummins@wsj.com Wall Street Journal
http://online.wsj.com/article/SB122649558637520553.html?mod=googlenews_wsj

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