Dubai luxury property prices falling

Dubai

Dubai, long claiming to be immune to the financial crisis has finally come clean and admitted to the fact that nary a property has been sold in the last six months, CityScape was a disaster, their debt to GDP ratio is a shocking 148%, property job losses are rising and real estate prices in Dubai are in freefall.

A number of measures have been implemented to prevent a complete collapse of the market - Dubai’s two main mortgage providers have gone bust and Adu Dhabi’s Real Estate bank has stepped in and merged the two lenders together, and a new mortgage provider, Abu Dhabi Finance has been formed . ADF will attempt to resuscitate the market by offering loan to value ratios of 85%, up to 30 year mortgages and flexible repayments.

Perhaps the most startling piece of news is the admission of a debt to GDP ratio this high. Just a few months ago, analysts were suggesting a ratio of just 7.7%. Certainly, more transparency needs to be introduced to the UAE’s financial markets, and hopefully this will eventually result in a little more faith in the region. For now, foreign investors are bailing out as fast as possible.

New York

Sales are falling, inventory is rising and prices are down, says Reuters. Not only is the market suffering from Wall Street’s current state, the rising dollar has put paid to the idea of attracting more foreign investment. It is fair to say, most Russian millionaires have enough worries at home to be thinking of a condo in New york.

Median prices are still rising in Manhattan, but this is largely down to the fact that sales of anything but the very high-end have dried up almost completely. New York has artificially avoided the foreclosure problems facing much ofthe rest of the country, but that is about to change. In August, state legislators in Albany placed a 90-day freeze on foreclosures. The 90-day moratorium ends next month. One of the first states that enacted a foreclosure delay was Massachusetts, with a 90-day freeze starting in May. At the end of the 90-days, foreclosure filings jumped 456% between August and September and the median home price fell 15%. Many legislators in other states considering a similar moratorium will be watching New York closely over the next few months.

London

As the pound drops in value, so interest from foreign buyers increases, although this demand seems to be limited to large single-family homes, and a recent trend is to reverse the practice of chopping up large terraced houses and turn them into apartments, with the reverse starting to happen. The Telegraph reports that house prices fell in London and the rest of the UK for the 13th month in a row, and no end appears in sight. The average price reduction this month was £17,000, and as much as £100,000  in some parts of London. Knight Frank’s latest figures show that prime residential property prices fell 3.9% in October - the fastest rate of decline on record.  A recent conference of real estate agents focused on “attracting Russian buyers.” One assumes they are not aware that Russia is having it’s own troubles?

One bright spot in the UK’s market was a record price of £1 million set for a penthouse in Birmingham, in the West Midlands. “Flat in Birmingham defies credit crunch,” reports the Times online. Seeing as the original price for the apartment was quoted as £1.65 million, I am not quite sure how they came to that conclusion, but a notable sale nonetheless.

France

French property prices have already fallen 10-15% this year, and according to Euler-Hermes, bankruptcies of real estate companies soared 28% during the first half of 2008. Nicholas Sarkosy, France’s President, announced a bailout plan which involved the French government buying as many as 30,000 unfinished homes.

Spain

The news in Spain goes from really, really bad, to really, really, really bad

The world famous La Manga Club Resort in Murcia has sought protection from it’s creditors after failing to refinance it’s E97 million debt. This is, in fact, the second time the club has gone bankrupt; the first time back in 1978. The club has applied for and recieved a “Concurso Voluntario de Acreedores,” which basically defers all debts and financial charges until 2010. This does not bode well for the Spanish tourism industry, and the glut of available housing, even in luxury developments continues to rise as prices continue falling.

Hong Kong

The stock market slump is taking a toll on Hong Kong’s luxury property market, with prices falling 17.7% since June, and analysts predicting a further fall of 30% in 2009. The Hang Seng Property Index has fallen 34% in the last month alone.

In an abrupt about-face, Manhattan luxury real estate, always thought to be immune to the current housing slump, is showing signs of weakness. The latest figures for the second quarter (traditionally the hot spot of the year) show large drops in both volumes and prices

Manhattan Luxury Property

According to the Corcoran Group, one of Manhattan’s largest realtors, sales slumped 38% to a five-year-low. In an interview with the FT, Pamela Liebman, Corcoran’s chief exec, said:

Two years ago, you could throw up some brick, put in a kitchen and a bath, put a price on it, and you’d have a bidding war. That’s not the case any more. Buyers now feel that a property they want today could cost less tomorrow.

City records for this period indicate that apartments in prime Manhattan neighborhoods are selling for less than their purchase prices — a situation that seemed all but impossible just a year ago.

The New York Sun has compiled a long list of properties that have recently sold for less than the original purchase price, including: a unit at 80 John St., in the financial district, which sold for $590,000, much lower than the $720,000 selling price in January. An apartment on 515 West End Ave., on the Upper West Side, sold for $2.1 million — $50,000 less than its 2005 purchase price. Even TriBeCa, “the wealthiest ZIP code in America,” is not immune. A three-bedroom condominium at 166 Duane St. is on the market for $4.495 million, well below the $4.7 million paid as recently as April.

Much like the city of London, which has also seen the first price drop in London luxury real estate in five years, the Manhattan luxury real estate market is fueled by bonuses from Wall street, which look like being a little thin on the ground this year.

As usual, the analysts are make a big fuss over rising median prices, which means the only stock moving is the very high end. Sooner or later, sellers needed to be realistic about prices asked, and this seems to be happening now.

Corcoran Group Q2 report (PDF download)
The Financial Times
The New York Sun

Colliers International in Hong Kong have just released their second quarter market report, and if ever you were looking for a positive spin on a poor performance, this is it. According to the report,

Notwithstanding the uninspiring sales volume, the average transacted price increased 8.2% QoQ to HK$14,868 per sq ft as at the end of May 2008, thanks to the limited supply of luxury stock, sustained occupational demand and the general expectations of growing inflation.

Translation - much like New York’s luxury real estate market, median prices are rising because the only property selling is the very high-end stock. Every thing else is sticking with unrealistic prices being demanded by sellers.

“Uninspiring,” would be an understatement, because the report also states that the total number of residential sales units shrunk by 34% QoQ during the three month period ending May 2008 and the number of sales over $10million HK ($1.3 million) fell by 44% in the three traditional luxury residential districts: The Peak, South Side and Mid-levels.

Some how the outlook is rosy for Hong Kong’s luxury residential market, and the only bright spot in the report is the continuing rise in costs of renting serviced apartments, prices of which increased by 5.8% during the same period.

Hong Kong of course, always suffers from limited supply. The full report is available as a PDF download here:

Colliers International