PETER COOPER

Buy­ing a house in Dubai is easy but hold­ing one is tougher.

Gulf Business - - CONTENTS - Peter Cooper is ed­i­tor of Ara­bi­anMoney.net

IRE­MEM­BER ONE AUS­TRALIAN CHAP who sold his Dubai prop­erty in early 2008 and went home with a $1 mil­lion profit on about five years of own­er­ship. Like many for­mer ex­pats then, he found out that he did not like home too much and came back to Dubai a few years later.

In­ter­est­ingly, David re­cently wrote to me say­ing that he’s buy­ing again this sum­mer in Ra­madan. Ap­par­ently there are peo­ple of­fer­ing ‘dis­tressed prices’ in the area his wife and chil­dren want to live in and the mortgage that he qual­i­fies for is very at­trac­tively priced too.

My im­me­di­ate re­ac­tion was that David might be a year early for the bot­tom of this cor­rec­tion. It started in late 2013 and is barely half­way done if you think in terms of the clas­sic three-year cy­cle, though ad­mit­tedly most of the price falls do usu­ally come in the first two years. That said if you need low-cost mortgage fi­nance, now is an ex­cel­lent time to get it with rates as low as 2.99 per cent.

Some­body from the Na­tional Bank of Abu Dhabi cold-called me of­fer­ing mortgage fi­nance last month. He re­fused to give his sec­ond name when I men­tioned that such cold-calling is strictly il­le­gal ac­cord­ing to UAE Cen­tral Bank reg­u­la­tions. But it was a sig­nal as to just how proac­tively the lo­cal banks are now sell­ing their mortgage prod­ucts.

If there is a global liq­uid­ity squeeze, and many ex­pect some sort of bond mar­ket

There will also be peo­ple who lose their jobs in Dubai in the slow­down or re­ces­sion that is com­ing due to the oil price crash. This is not a very pleas­ant ex­pe­ri­ence for an ex­pat with debt like a mortgage or car.

cri­sis any time soon with the Fed­eral Re­serve seem­ingly locked into rais­ing US in­ter­est rates, then higher mortgage rates are a given. And don’t for­get the UAE dirham’s peg to the US dol­lar means that lo­cal in­ter­est rates will fol­low higher, no mat­ter what the oil price.

So I sup­pose you could see this as a two-tier mar­ket for buy­ers. For those who need a mortgage, and that is the ma­jor­ity of UAE buy­ers these days, the best time to buy could in­deed be in Ra­madan, in the depths of the ul­tra-hot Ara­bian sum­mer, be­fore the Fed makes what will prob­a­bly be its fa­tal pol­icy er­ror this Au­tumn, and raises in­ter­est rates.

For those with cash, it is also ob­vi­ous enough that the low­est house prices will come only af­ter a big hike in the cost of buy­ing a home with a mortgage. Ba­si­cally, hous­ing prices will have to ad­just down­wards to the point at which they are af­ford­able to mortgage pay­ers.

That will un­for­tu­nately oc­cur be­cause some own­ers will be forced to sell at low prices once they can­not af­ford their monthly mortgage pay­ments. We prob­a­bly all know some­body who has gone off and bought a lot of prop­erty re­cently us­ing bor­rowed money. They will be the next ‘dis­tressed sell­ers’.

There will also be peo­ple who lose their jobs in Dubai in the slow­down or re­ces­sion that is com­ing due to the oil price crash. This is not a very pleas­ant ex­pe­ri­ence for an ex­pat with debt like a mortgage or car.

Your em­ployer has to in­form the bank by law im­me­di­ately that you are fired and you only get a very limited pe­riod to pay off all your debts. In the 2009 real es­tate crash, many debtors sim­ply fled the coun­try. This re­pos­sessed prop­erty will also be dumped back onto the mar­ket de­press­ing ‘dis­tressed prices’ fur­ther.

Of course all mar­kets bot­tom out. The UAE prop­erty mar­ket is more ma­ture than it was from 2009 to 2010 when the ram­pant flip­ping of off-plan units cre­ated a false mar­ket.

Re­cent pop­u­la­tion growth has been strong and Dubai in par­tic­u­lar will con­tinue to at­tract new res­i­dents. Mus­lims fear­ing per­se­cu­tion else­where are sadly a ma­jor po­ten­tial new source of res­i­dents, valu­ing the tol­er­ance and se­cu­rity of this city.

The oil price will also bot­tom out, and the money print­ing of the cen­tral banks could re­verse this year’s de­fla­tion into some­thing far more like a 1970s style hy­per­in­fla­tion. Home buy­ers would be pro­tected by the ris­ing value of their prop­erty while their mortgage debt would be­come far less of a bur­den as salaries rise and monthly in­ter­est pay­ments fail to keep up with in­fla­tion.

Buy­ing real es­tate is a clas­sic hedge against in­fla­tion, and that’s what the Euro­pean Cen­tral Bank’s $1.2 tril­lion quan­ti­ta­tive eas­ing pro­gramme that be­gan last month is all about.

Cen­tral banks can sim­ply print an un­lim­ited sup­ply of pa­per money un­til they get what they want, and they don’t want de­fla­tion at any cost. How­ever, if past prece­dent is any guide, the cen­tral banks al­ways overdo it.

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