It has been apparent for many months that Dubai, one of the 7 Emirates of the United Arab Emirates, is facing an economic disaster. However, Tom Royce’s blog, The Real Estate Bloggers, reveals how serious the real estate crisis is here. For years, Dubai has been synonymous with wealth and luxury. Palaces and luxury cars were a common site. Development here was, and for some reason, still is occurring on a massive scale. I even remember reading somewhere that Dubai was by far the largest purchaser of cranes and heavy construction equipment in the world. Nonetheless, roughly “$263 billion dollars worth of projects have been cancelled or put on hold in the United Arab Emirates”, states UAE Rush, a website dedicated to real estate development in the 7 Emirates. I completely agree with Tom Royce, the author of this entry, that Dubai is a bubble market just waiting to explode. A huge glut of developed and extremely expensive properties exist here that most consumers cannot afford given the current economy of that country. As if that’s not bad enough, many of these properties were built using loans that probably cannot be paid off. Property values have already plummeted over 60% in some areas and developers are struggling to find tenants for their buildings.
I predict that land values will fall even further over the next few years as huge unfinished projects near completion and enter the market. This will create the oversupply of properties I spoke about earlier. It is just a matter of time before this bubble market bursts.
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| Dubai's skyline |
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| The halted construction site of the Nakheel Tower |
Many believe the current foreclosure crisis only haunts lower income families, those that are out of work and cannot pay their mortgage. Things have changed drastically over the past few years. More and more homes valued at over 1 million dollars are facing foreclosure. Although foreclosure rates for the general housing market have slowed in California, the number of homes valued at over a million dollars repossessed by banks and private lenders has tripled over the past 3 years. Many believe the cause of this increase in foreclosures can be attributed to poor financial planning and a downturn in the stock market. Similarly to cities around the country, several ultra- exclusive residential districts in Southern California such as Beverly Hills, Brentwood, and Newport Beach witnessed the sale of homes for a fraction of what they were once worth. For example, the August 29th issue of the Los Angeles Times mentioned a 12,000 square foot mansion, once valued at almost 17 million dollars, selling for 8.595 million dollars. That’s almost 50% decrease in value! Even celebrities are feeling the effects of the economic downturn. Oscar winner Nicholas Cage’s home in Bel- Air, Ca recently went into foreclosure and was sold by Citibank for 11.8 million dollars. Its original price: an astounding 35 million dollars.
