Luxury Real Estate News 30/11

The big “news” this week is obviously the Dubai situation, although we would hesitate to call it “news,” as the Dubai bubble has been obvious for some time and Dubai’s $80 billion default is just the icing on the cake. The only real surprise (to some) is Abu Dhabi’s seeming unwillingness to bail out their smaller sister. I have sneaking suspicion this is just a game on the part of Abu Dhabi and a rather large sum will be forthcoming – with strings attached. The last bail out from Abu Dhabi came with a lot of strings that has seen the Burj Dubai still unfinished and I gather that there was a requirement or “penalty” to leave it empty for a year.

The reactions to the news are pretty predictable. The Dubai government has run out of options and Dubai’s stock market slid 7% with Abu Dhabi following suit- falling 8%. No surprises there and once again a game is being played behind the scenes – much to the infuriation of outside investors – the real question remaining is just how much Dubai will be forced to relinquish to be bailed out and how long will the process take. Nakheel,(another part of Dubai World) has requested that all three of it’s Islamic bonds traded on the Dubai stock exchange be suspended. This includes the $4 billion bond that was due to mature on December 14 and was the trigger for Dubai’s recent announcement. I had previously understood that Islamic bonds were non-adjustable, so I suspect that any bailout from Abu Dhabi will be in the order of $4 billion, on or about the 14th December. Call me a prophet if you will.

Far be it for me to suggest that Dubai is a necessary outlet for some of the more conservative wealthy neighbors and there will always be a need for a few “un-Islamic,” entertainment facilities away from the more stringent cultural requirements of home.

Still – global markets seem to have decided that $80 billion is not worth worrying about – or Abu Dhabi will step in in time and most markets recovered quickly after an initial shock drop. Having said that – the amount of exposure by the European banks is still some cause for concern, especially with the recent announcements of massive, unsustainable debts from a number of European countries including Ireland, Portugal, Ireland, Italy, Greece and Spain. Is Germany man enough to cope and at what point must the ECB start withdrawing liquidity?

Elsewhere- British property prices once again crept up 0.6% on sales of around 40,000 units compared to typical sales volumes of 100-120,000 units. This is being called a “rally,” by the government press release farms (newspapers), although the Telegraph did go as far as to suggest, “prices rise, but there are signs the rally is losing steam.” Loosely translated this means the recent “rally,” has been driven by dismal sales around the country – except at the higher end of the market in certain areas and when sales volumes return to something approaching normal, we can expect substantial falls in average sales prices.