Speculators 'dragging market down'
Dubai, May 31, 2009
Speculators are now responsible for driving property prices below their ‘real’ values as investors pounce on distressed sales, said an UAE-based real estate expert.
Mohammed Nimer, CEO of mid market property development company MAG Group Properties, pointed out that the UAE real estate market was still suffering from the antics of speculators flipping properties, amateur landlords "and sadly those end users unable to meet their mortgage commitments due to unemployment."
Nimer's MAG Group is involved in Dh3 billion worth of projects in the UAE. "Speculators were originally responsible for driving property prices to unrealistic levels," he stated.
"Now although they are on the receiving end of the slump in prices, they are still blighting the real estate landscape by panic selling and undercutting the fair market price," he added.
Nimer admits that this is good news for those wishing to buy property. "The real value of a property is simply what somebody is willing to pay for it", he said, citing the wider implications.
“It makes banks reluctant to lend because prices are still falling and it is difficult for them to ‘feel the bottom’. That’s why we are experiencing loan-to-value (LTV) ratios of 75 per cent - they are calculating the risk,” said Nimer.
On the other side of the coin, Nimer believes that falling prices then unnerve professional and institutional investors for the same reason, which in turn starves developers of funds.
“It’s a vicious cycle,” admits Nimer, “Forget the benefit of lower construction prices we have to wait until these distressed sales are pushed out of the system. Only then we will witness some stability and a return to fundamentals instead of sentiment based on fear and uncertainty,” he observed.
Nimer, meanwhile, welcomed initiatives by some developers and investment groups that are taking the rent-to-buy route to keeping the house sale option open to those that might otherwise lack the confidence or means to commit to home ownership at the moment.
And he also praised Dubai Government’s moves to guarantee job security for all government employees and to extend the work visa expiry period so that redundant expats have more time to try and find work.
“These initiatives will all contribute positively in some way to stabilising the market, “he said.
Overall Nimer did feel optimistic about the mid to long term prospects for the UAE real estate industry.
“Although property prices fell dramatically in the last quarter of 2008 and the first quarter of 2009, the rate of decline has now slowed considerably, indicating that the market could be approaching the bottom.”
In addition, with years of massive budget surpluses, substantial Sovereign Wealth Funds (SWF) and oil recently breaching $60 per barrel, Nimer was confident that the UAE Government had the means and the desire to fund major infrastructure projects.
“With government support the UAE will overcome this challenge, but the private sector has to take responsibility for its own actions," he stressed.
"Speculators brought us into this situation and unfortunately it looks like we are still waiting for them to finally exit the market. What is of primary importance is that we limit the damage they have done, learn from our mistakes and take responsibility for our own actions,” Nimer added.-TradeArabia News Service