With the ongoing speculation in the property market, coupled with the liquidity squeeze which gripped the local banking sector, the Dubai property sector has come to a halt, and fewer people are seen investing on new properties.
A "dramatic slowdown" is likely in the short-term, as property developers such as Nakheel and Emaar will find it difficult in securing new financing, reports the Gulf News.
However, the projects that have already commenced and have already made commitments with financial institutions will continue, despite the financial turmoil, as the local banking system in the UAE has already been injected with liquidity.
According to industry sources, the current drop in real estate does not seem long-lasting. Although at present the property prices have eased a bit, the forthcoming slowdown in construction will reduce supply, which in turn, would drive up the prices again.
The Chief Executive of Rasmala Investments, a networking event with Dubai Property Sector, Ali Al Shihabi, agrees that there is little demand for real estate at present, as the investors are cautious and are awaiting prices to drop further. The Banks also do not have much capital to finance the development of new properties.
However, for an investor, this would be the best time to buy. Existing projects would continue. Major developers would continue their work, although at a reduced level. Dubai already has solid work for the next three years, and the current slowdown in supply would once again generate demand and increase in prices, during the next few years, Al Shihabi said.
The Resident Partner of Property Consultancy firm Cluttons, Ronald Hinchey, said that the slump in real estate activity may be due to the lack of liquidity in Banks and the reduction in loan-to-value ratios.
People are finding it difficult to borrow money for property as the mortgage providers have lowered their loan-to-value ratios to 50 to 70 percent from the earlier 80 to 90 percent. The lending institutions too have committed funds on properties that are under construction.
Al Shihabi pointed out that Dubai has been hit by its own financial turmoil this year, due to the downfall of major financial institutions such as the Lehman Brothers in the US. During the first six months of the year, an influx of several billion dollars from global financial institutions has been common.