DUBAI PROPERTY TRIPPED UP BY OBAMA’S PEACEMAKING
Wayne Arnold, [email protected]
The National
August 10. 2009 6:41PM UAE
Could the slump in Dubai property prices be Barack Obama’s fault?
The US president has never been to Dubai and there is no evidence
that he has ever owned property there. But since moving into the
White House in January, Mr Obama may have inadvertently contributed
to weakening demand for property in the nation’s financial capital,
according to an academic who has studied trends driving the market.
Dubai’s property market has long relied on demand from the Middle
East, India, Pakistan and Iran, where investors faced with chronic
political and economic instability look to Dubai as a safe haven.
By lowering anxieties in the region with his more accommodating
foreign policy, Mr Obama may have reduced the political impetus for
buying in Dubai.
"Dubai has depended on insecurity in the rest of the region," says
Sayed Bozorgnia, a visiting assistant professor of economics at Abu
Dhabi University’s College of Business Administration.
Under Mr Obama’s predecessor, George Bush, the US was a regional wild
card. Now, Mr Bozorgnia says, "there’s a little more stability".
He says the Obama factor is only one of several reasons why Dubai
property prices are likely to keep falling this year.
He and his students, many of whom he says are property investors, have
identified a vicious circle of diminished expectations and falling
prices that raises questions about the wisdom of having relied so
heavily on property to diversify the country’s economy away from oil.
Along with diminishing fears of wider regional conflict, something
many thought was a distinct possibility when Mr Bush was in office,
demand for property in Dubai is falling victim to declining wages
and rising job losses. Even if property owners are not losing their
jobs, tenants have been made redundant, affecting demand for rentals
and pushing rents lower. That reduces the yield on property relative
to other investments and makes renting more attractive to residents
than buying.
"As long as rents are falling, people are not inclined to purchase,"
says Mr Bozorgnia. "In addition to that, the population has been
falling. A lot of people have left or are thinking about leaving."
And as long as potential buyers fear conditions point to a decline
in prices they tend to delay purchasing, further sapping demand. The
same kind of psychological effect applies to supply. Developers
fearing prices will fall further are rushing to sell at discounts,
Mr Bozorgnia says, placing further downward pressure on prices as
they hunt for buyers.
"Since firms think prices are going to be lower, they want to unload
as much property on to the market as possible," he says. "So your
supply side has increased; your demand has decreased."
Demand is unlikely to improve, according to Mr Bozorgnia, until banks
ease mortgage conditions, a conundrum the UAE Central Bank is still
struggling to solve.
Banks’ willingness to lend for property purchases, after all, is
unlikely to improve while the outlook for prices is so dim. Banks
are already experiencing rising mortgage defaults.
Persistent weakness in the property market is not good news for the
nation’s economy. Property and construction are the UAE’s largest
employers and, after oil, its largest source of income.
In the future, Mr Bozorgnia says, the country would do better to
promote other industries, not by buying up global champions but by
luring innovators and entrepreneurs.
"Most good ideas come not from huge organisations but from small
companies," he says.
The UAE may not hold much allure for start-ups, however. It ranks
46th on the World Bank’s ease of doing business list, behind Bulgaria,
Armenia and Tonga. Much of the foreign investment that poured into the
country over recent years has been to take advantage of the property
boom. But with the global economy still struggling to emerge from the
downturn, buying from the country’s top sources of capital, India,
Pakistan and Britain, has been in steady decline.
So are purchases from Iran, which despite recent election unrest no
longer faces the prospect of a US invasion. Purchases from Russia,
relations with which Mr Obama has pledged to reset, have also dwindled.
From: Emil Lazarian | Ararat NewsPress
