The bubble is bursting in Dubai
The Economy, Real Estate November 12th, 2008
But no, our housing market is different, our economy is resilient. Home prices can only go up. Isn’t that what they all say?
Well, it turns out that Dubai was not that immune after all. Interesting article on the Wall Street Journal site:
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.
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.
