govt controls If the rents are going down the property prices will follow.
The government will not let the supply to take over the demand.
A drop of 10% is expected but anything more will be disaster and will not happen
For buildings that are months within completion, i assure you - the govt will not try to 'slow them down'. Look at it from the developers point of view - especially the larger govt linked companies. As fas the developer is concerned, the units are sold. It is in their interest to complete them ASAP - especially if there's a bank invloved because the interest on the mortgage starts to get paid by the buyer at hand over. In addition, the devleoper will want to complete and bank the final installments and book their profits. There is also the contractor that can only get paid on completion. The cost overruns of delaying the project 'willfully' eats into their margins.
The projected 70,000 units may not hit the market in 2009 but most likely - a number very close to that. If you look at Old Town and the Burj Residences, most of the units that are rented are owned by long term investors - with a small percentage residing in them as end users. There are also large number of flats that are vacant that need to be resold or most likely will be rented because of the slow market. These rents and prices are already dropping - with rents dipping more than 10% and its' only been weeks....! and there are still tons sitting vacant. They will have to drop further to move and some investors are already starting to recognize this and acting accordingly.
There are many, many sellers in the market now that hold anywhere from 2-3 flats to as much as several floors. More than you can imagine and certainly more than I expected. I know, because I am being offered to buy them out in mass. In my calculations, I am adjusting projected rent incomes by 30% less than current market by 3Q 2009. Thousands of people are leaving and more will be making an exodus. and I am not talking about people living in labour camps. Hotel occupancy on the upper tiers are already off by 50% + and this is the peak season. That will mean less service apartment rentals. Most international businesses are in no position to expand as we read daily about huge layoffs... So, who will fill them? Where will they come from? to keep the demand up?
It's not all doom and gloom - I see the aforementioned as a good positive thing. yes, albeit, the returns are lower but US treasuries are under 3% and I am looking at the long term hold. Only with rents adjusting DOWN - commercial and residential - will Dubai be able to attract people back when the recovery begins. ( the other variable that can increase the demand is related to regional political risk.. but that's bit more complex and protracted within the context of this blog)
It is true that many projects will be scrapped or delayed but these are the projects whereupon they have not broke ground or have started construction. In essence, they are paper and sand. Also - you will see more developers offering RENT / Purchase schemes - antoher reason why they will want to complete ASAP. The numbers just dont make sense to unduly delay construction in progress especially as construction materials like steel and cement have dropped 50%.
There will be more funding coming into the market - different players - positioned for the long haul and of course, they will be buying to rent. These corrections are already being calculated for future acquisitions. But, I do respect everyones opinion and time will tell soon enough.
My thanks for your feedback as as well as all of the members that have contributed.
respectfully...
Rents will go down by atleast 40% same time next yr. Even though I believe in my own prediction more than newspapers still I would like to share a recent article with you....
