Dubai's once-booming real estate sector is suffering a drop in pricing that is leading banks to rein in lending...

Dubai's once-booming real estate sector is suffering a drop in pricing that is leading banks to rein in lending and forcing developers to cut staff and delay their projects.

The outlook for Dubai's property market could not be more different today to how it was 12 months ago. Then, prices were on an upward trend that had not faltered since the boom began in 2002.

In the first quarter of 2008, the Colliers International House Price Index, which monitors villas, apartments and town houses in 14 areas of Dubai, rose by 42 per cent rise compared with the previous quarter. By the second quarter, the index was up 76 per cent on the previous year.

However, at just 16 per cent, dubai property sector growth in the second quarter was considerably slower than in the first, according to Colliers. This was the first warning sign that the market was turning.
"In May, I issued a newsletter to our users warning that a crash would happen," says Djamel Amalou, managing director of Dubai online property agent www.alineah.com , which carries listings of commercial and residential properties available for sale. "This was based on the quality of content of entries for some of the 18,500 properties in dubai listed on our site, and can explain the sentiment of the developers.
"We saw more and more distressed sales [descriptions being uploaded to the site]. Sellers were using words such as 'negotiable' and 'must sell now'. Owners were pushing harder and the window of negotiation was open."
Selective lending
The growing desperation among vendors to sell was being driven by an increasing number of res-idential properties coming to market just as fears emerged that the global credit crisis was going to affect the buying power of would-be home-owners.

Over the past few weeks, several banks have tightened lending criteria to buyers, including some of Dubai's biggest home-grown institutions, including Emirates NBD, Amlak Finance and Tamweel. These join international institutions such as Lloyds TSB and HSBC (see table, page 50). Loan to value criteria has been reviewed by lenders – for example, Lloyds has cut lending from 90 per cent of a property's value to 50 per cent.

Banks are also being more selective about who can borrow. Earlier this month, MEED reported that Emirates NBD would not be lending to expatriates working for Dubai's biggest developers, and nor would it be offering them retail banking facilities.

"This is a mixed reaction to both global and local issues," says a source at one of Dubai's biggest banks. "Since international funding dried up, banks are taking a more cautious approach to lending.
"There was also a supply and demand mismatch in housing, which led to prices soaring. Now banks are scared that expatriates could leave, abandoning their loans."

Contact Information
d.amalou@alineah.com
www.alineah.com
DJAMEL AMALOU
P.O.Box: 73976, Dubai, United Arab Emirates 337-1500
TEL: +971 4 335 1080, FAX: +971 4 335 1090