Finally a little truth is beginning to emerge from the emirate of Dubai after years of a cover up that involved everyone constantly being told that the emirate’s economy was unstoppable, that the only way was up for this state and that Dubai would weather any financial storm and come out on top, as one of the most successful and affluent locations in the world.
The bubble that was Dubai’s success has spectacularly been popped – it actually burst of its own accord about 2 or so years ago, but since then there has been an almighty cover up, the likes of which we have never seen before – oh, apart from when it came to WMDs, Tony Blair and the Iraq War of course, allegedly.
So, Dubai is drowning in debt, they have asked for a suspension of repayments, senior figures in the leading construction companies have been sacked and everything seems to be grinding to a halt on the high profile property developments such as the Dubai World project and the Burj Dubai, which is supposed to be the world’s tallest manmade structure. What’s more, an emergency debt restructuring team from Deloitte have been called in and we’re quite certain that Dubai’s property prices are likely to plunge even further. So, does this herald the end of the Dubai dream…
Those who bought towards the end of the boom and who have unwisely financed their project in the hope that they could flip it back to the market before completion for a profitable sale and terminate their debt at that point are likely to be aware that their Dubai dream is over. There were few new buyers coming to the market before the Deloitte announcement – and now that mass popular media has been reporting on the collapse of Dubai’s economic fortunes as well, you can bet your bottom dollar that no one will be entering the market to buy half built apartments from another buyer keen (read: desperate) to exit the market.
If you find yourself in such a position you have a number of damage limitation options open to you. Firstly you can walk away – cut your losses and walk away from your unfinished property. However, you need to be aware that you will be defaulting on the contract you signed with the developer or agent and legally, they can potentially pursue you for the payment of your property in full depending on the wording of the contract you signed and whether the developer has already broken it by perhaps not completing it by a set date. Before you take this path if you feel that desperate or disillusioned, you should seek legal advice on the contract you have signed and whether breaking it will have long-term repercussions in your life. Do tread carefully because we do not want anything worse than you giving up on your dream to now happen to you as well.
Alternatives include restructuring your own debt by perhaps taking out a cheaper, longer-term loan to afford to pay for your property over what may be perhaps a longer construction period before you actually manage to get your keys and can either move in or let it out to a paying tenant. You could also try working with your developer to see what their plans are for completion – although, judging by the billion dollar debt levels of the leading constructors, few are going to listen to your pleas because they will not be in a financial position to do so. The other idea you have is simply sitting tight and holding tight for the long-term and bearing in mind that Dubai is unlikely to fail completely. Okay, yes, we did say that – but at the same time, we are not now willing to bet on that. Yes, fundamentals are strong for Dubai’s long-term positive development and rebound – however, even we could never have foreseen the actual levels of debt the media are discussing with relation to the emirate and because the truth never outs in Dubai, you can be pretty sure the picture is probably worse even than is being reported. So, for the first time ever, even we are not totally sure about Dubai’s long-term prospects and we’ve been a long time advocator of this emirate as a decent long-term bet. So, yes, you could look to the long-term if you feel confident enough, and will the fortunes of the emirate to turn or for a kindly soul such as Abu Dhabi to bail it out even further and for money and business to start flowing back in, thus pushing up the value of the property you’ve bought once again.
Many will be of a mind to just walk away however – and we can understand that feeling, however, as stated we do urge caution with regard to the contract you have signed, the fact that defaulting on a payment in the emirate is ironically a criminal offence, harshly punishable and that you may be pursued for your debt even if you are not in country.
Meanwhile, what is going to happen in Dubai’s property market? Well, we don’t have a crystal ball obviously, but who in their right mind is going to take a punt on a spectacularly bankrupt emirate that’s still in denial? Yes, Deloitte are geniuses when it comes to finding a path out of incredible debt, but I wonder whether they have ever worked with such inflexible people who are still so arrogant and determined that their vision can be realised before? We shall see! If there is any glimmer of hope you can be sure there will be some massive investors who love a high-risk punt buying up prime stock – and that is what we’ll all have to hope for and watch out for. Otherwise, yes, the Dubai dream is over and whilst property prices are likely to plunge further on the back of the news just out about Dubai’s multi billion debt levels, they will remain impressively low forever if nothing can be done. The one good piece of news is that anyone moving to Dubai can now get around the shockingly high rental rates for property – they can just buy a disposable flat instead, live in it for the duration of their contract and board it up when they leave!
