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article imageOp-Ed: The Death of the Dubai Property Boom?

By FC Kaw     Dec 7, 2008 in Business
What is likely to happen to the property market in Dubai? Will there be any winners that come out of the global economic slowdown? Perhaps it's all about survival now.
Much of the wealth and growth of Dubai has come from the sale of 'off plan' properties. This is when a developer produces plans for a property, usually a fancy-looking apartment block, and then takes deposits from buyers for these apartments. Usually people are told that they will be ready in two years, although most projects have been delayed.
The numbers worked like this: Buyer 1 pays say 10 per cent down for a $1 million apartment, i.e. $100,000 a day, and later he sells it to the buyer 2 for $1.3 million (a profit of 300 per cent on his $100,000), buyer 2 then sells it for say $1.5 million a month later, and he has made $200,000 on a total outlay of $400,000. And then buyer 3 keeps it for another 6 months probably pays another 10 per cent to the developer and he sells it for $1.8 million. His total outlay was $600,000 and has made a profit of $200,000.
Buyer 4 is the one left holding the baby. He has paid 80 per cent more than cost and in most cases hoped he could sell it for even more, but not now. He has probably borrowed the majority of the money ($800,000) and then has to make the rest of the payments on the property.
Today, there are virtually no buyers in the market, and interest costs are probably around $65,000 U.S. per annum, plus he has to find the remainder of the funds for the developer, in this case, $800,000 and banks are not lending.
What will be the outcome? Well, four sets of people will lose out, first the bank who lent the money, many will never get it paid back, secondly the developer will probably not collect the rest of their money, maybe they could take it back and sell again but there are no buyers out there. Thirdly the construction company who will struggle to get their money from the developer, and fourth the person who was the last owner.
So what will happen? Probably the only solution is for the developers to become landlords instead of selling property; this in turn will mean rents will fall but at least there is a chance for most of the people to survive in this scenario.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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