So... how is that financial crisis going?

I was reading the paper today and there were two articles discussing the impact of the financial crisis in the region. The first was about Dubai and how property prices continue to fall, in some parts of the city over 30% in just the last three months, not including any decreases before then. But before you think Dubai must be getting very cheap take a look at the prices being mentioned:

Renting a two-bedroom flat on the Palm Jumeirah, an island shaped like a palm frond and visible from space, was 14 to 33 percent cheaper in May than it was in March.

That puts annual rent at between Dh120,000 and Dh175,000 dirhams, or $2,723-$3,972 a month in May compared with $3,178-$5,901 in March.

Got that? Three months ago a two-bedroom apartment in an upscale neighbourhood could rent for as high as US$5,900 a month. A two-bedroom apartment!! So yes prices have plummeted to "only" $3,900 a month for the apartment, the cheaper ones for $2,700 a month. Gee what a deal, I'll take four please!

This is why I had said in my blog even two years ago that property prices in Dubai were heavily overinflated and I don't know how anyone who bought into that market seriously thought that prices were going to continue to increase 20 to 50% a year. Did they honestly think no one would mind paying US$5,000 a month to rent a small apartment? Did they expect that next year $6,000 a month would be reasonable? Or that an apartment that they bought at $400 a square foot would sell for $800+ a square foot three years later? Well, I guess for the last five or six years growth in property value of 20 to 50% a year was indeed how it worked in Dubai. I guess a lot of people thought it would last forever. Those people have now lost a ton of money.

From what I have read general expectations are that prices are going to continue to fall in Dubai for at least the rest of this year, possibly longer. They have got a long way to go yet before they get to what I would consider reasonably priced. There is a lot of speculation that there will be another mass exodus of people from Dubai in the summer who have just been waiting for the schools to finish for the year before moving out. If so rental prices will continue to plunge.


The other article was about deflation in Qatar. Prices have gone down a bit in the last quarter driven generally by rents and housing. I had not really noticed much of a decrease here but from the occasional snippet in the newspaper I guess rental prices have probably gone down 10 to 15 per cent. The cost to buy/sell property has apparently fallen more than that but almost all property here can only be purchased by Qataris (or maybe other GCC nationals as well) so it does not really have an impact on foreign investors. I think foreigners can only purchase property on the Pearl and Zigzag Towers and even those two developments are not completed yet. The Qatari government is probably breathing a sigh of relief that it did not get into property development to the extent Dubai did.