Is the global property bubble ready to burst?


  • English
  • Arabic

Residential global property has arguably been the most exciting investment of the past eight or nine years, but lately the fun has been draining away.

House and apartment prices have been driven sky high by rock bottom interest rates and there are growing signs that they cannot go any higher.

Affordability has been stretched as far as it can go. Buyers are reluctant to part with their money at these levels. The days of double-digit annual house price increases appear to be over.

The question now is whether the market is merely slowing, or whether it could go sharply into reverse. Is this a bubble, and if so, could it burst?

Nothing lasts forever. London was the world’s No 1 property hotspot, but lately the luxury end of the market has slipped.

Completed sales of newly-built flats in prime central London areas fell 41.4 per cent across 2016, according to figures from London Central Portfolio, while average prices for new builds also fell 8.7 per cent to £1.9 million (Dh9m).

The very top end, for houses worth £5m or more, was worst affected with a 57 per cent fall in new build sales. However, prices across prime central London still rose 3.7 per cent, once sales of existing stock were also taken into account.

The pattern of slowdown can be seen around the world in Knight Frank’s latest Prime Global Cities Index, which tracks the performance of luxury residential prices across key global cities for the period of March 2016 to March 2017.

Its survey for the first quarter of this year showed that global property hot spots remain, with luxury prices in major Chinese cities Beijing, Shanghai and Guangzhou up on average 26.3 per cent, while in the Canadian hot spot of Toronto, prices grew 22.2 per cent.

In Seoul, prices grew 17.6 per cent, Sydney and Stockholm registered price rises of 10.7 per cent, and Berlin, Melbourne, Vancouver and Cape Town grew between 7 and 9 per cent.

However, outside this buoyant top 12, price growth was in the low single digits, with a third of the 41 cities featured suffering a drop.

Worst performers were Istanbul (minus 8.3 per cent), Moscow (minus 7.3 per cent), Zurich (minus 7 per cent), London (minus 6.4 per cent) and Taipei (minus 6.3 per cent).

Taimur Khan, a senior analyst at Knight Frank, says despite the slowdown there is no need for investors to panic. "This is a story of moderation rather than underperformance, with price growth in single digits."

Tighter regulations have slowed growth in some cities and local factors are at play, he says. "In Beijing and Shanghai, second home buyers rushed in ahead of the new rules insisting that investors put down larger deposits, temporarily driving up prices. Growth now looks more sustainable."

Mr Khan says that the United Kingdom government has introduced more than 20 changes to property taxation, either direct or indirect, since 2010. "The latest example was in April 2016, when it levied a 3 per cent surcharge on second home and investment purchases in England and Wales, slowing demand. However, in recent months sales volumes have been trending up."

Mr Khan says a lack of supply in Toronto has created a bottleneck, driving up prices, particularly at the prime end. "Other financial centres such as New York and Singapore have enjoyed significant price growth, but are now slowing." He says there are still plenty of opportunities as owners and second home buyers seek education, lifestyle and leisure opportunities in the major global cities. "High net worth investors are attracted to Sydney and Melbourne, while Berlin is booming due to its growing tech industry."

Different cities are at different stages of the market cycle, he adds. "Affordability is stretched in some places and for some buyers but there is also a shortage of supply, and this is what is underpinning the market. Any price dips are likely to be met by a wall of demand."

Faisal Durrani, the global head of research at Cluttons, and an expert in the Middle East and Africa property markets, also says global property is slowing while ruling out the prospect of a crash. "This is no bubble bursting, just a gentle deflating."

UAE outlook

Investors in luxury property face a catch-22, as that is where values are falling fastest in the UAE says Mr Durrani. "We are seeing this pattern in Dubai, Abu Dhabi, London and elsewhere, where investors are reluctant to part with their money."

Mr Durrani says that almost a decade after the financial crisis many economic problems have just become more complicated. "The oil price has collapsed, which has hit the Middle East. The Trump presidency is causing anxiety as it intervenes in Syria, North Korea and Iran, while the US economy faces domestic economic challenges. Brexit looks set to drag on and on. Everywhere you look, people’s political views are becoming more polarised. There is little middle ground, and this makes investors nervous."

In Dubai, prices in Burj Khalifa are down more than 20 per cent in the last 12 months, while villa and apartment prices in Palm Jumeirah are also falling, he says. "The priciest areas are coming off worse, including Emirates Living, The Lakes Community and Arabian Ranches."

However, Mr Durrani says prices are stable in downtown Dubai thanks to its attractive location and shrinking availability. "In 2015, there were 3,000 off-plan launches in downtown. Last year there were just 1,400 and opportunities to buy first-hand are starting to diminish as volumes fall. International City and Dubai Discovery Gardens are also holding steady."

The Dubai market is also throwing up local investment opportunities. "The biggest is in affordable accommodation for low to mid-income earners, which is in short supply, and can generate yields of between 6 and 8 per cent a year," he says, adding that affordable housing is now limited to older parts of Dubai, such as Karama and pockets of Deira and Bur Dubai, as well as International City and Discovery Gardens in new Dubai.

In Abu Dhabi, Mr Durrani says prices in Saadiyat Island are down 25 per cent over the year, with rents down one- third. "Demand at the top of the market has dried up as there are now fewer senior level jobs, and residents are losing their living allowances or seeing them cut. Job insecurity is growing and people are downsizing to save money. Demand for luxury rentals has therefore diminished significantly."

Many Middle Eastern investors are now looking farther afield to Toronto as a result, he adds.

"Canada offers high-quality education and luxury high-end properties. Prices are rising but property is still relatively affordable, starting at US$600 per square foot compared to, say, £5,000 -plus in London’s Mayfair. This is a massive difference and Canada is a welcoming environment for investors from the Gulf."

Craig Plumb, the head of research at global real estate experts JLL Mena, says residential prices in the Middle East and North Africa (Mena) have been generally falling for the past two years, but investors shouldn’t panic. "This is nothing like 2008-09, there is no bubble waiting to burst."

Prices have declined by between 5 per cent and 15 per cent since mid 2014, he says, with Dubai leading the way. "Dubai acts as a bellwether for the region. It is the first to react, with others lagging 12 to 24 months afterwards."

Mr Plumb believes the Dubai market is now close to the bottom of its cycle. "Prices have been largely flat now about 12 months as the market has bobbled along the bottom. We expect some increases towards the end of 2017 although it won’t be significant, less than 5 per cent in most locations."

He says the story varies across Mena but prices generally are likely to soften further over the rest of the year.

Global outlook

Yolande Barnes, who heads the World Research Team at global real estate services provider Savills, says the global real estate market recovery peaked in 2015 and many cities now look fully valued.

Yet she remains optimistic, anticipating strong demand in major cities in the Asia Pacific, western Europe and the United States.

The recovering Chinese economy bodes well for Asia Pacific, and she expects India to become a more important regional player as its economy is forecast to grow significantly, boosting Singapore.

However, many European cities now look fully valued and increasing uncertainty around Brexit, Italian banking and Greek debt default has subdued interest. "Activity is down 21 per cent overall, despite pockets of strong city performance, and down 38 per cent in the UK," says Ms Barnes.

While UK hot spots such as London, Oxford and Cambridge look pricey, cities such as Bristol, Manchester and Glasgow may offer opportunities. "As do lesser known locations such as Canterbury, Bournemouth and Leamington Spa."

In the US, mature city real estate markets such as New York and San Francisco are slowing but there is action elsewhere, Ms Barnes says. "Now it is the turn of the second-tier US cities to shine as economic growth has buoyed new industries in Nashville, Portland, Austin, Philadelphia, Ithaca, Raleigh and Durham."

Strong demand from domestic institutions and overseas investors has sustained US transactions levels, which rose 5 per cent in 2016 to buck the global trend.

Ms Barnes says the bull market in prime real estate is over, especially with the US Federal Reserve looking to nudge up interest rates. "Future investment returns will be driven by rental growth and there is no reason to expect price falls providing rents remain steady."

In an age of geopolitical and economic uncertainty, real estate has taken on a new role. "It is increasingly seen as a stable, real-world asset with safe haven income-producing attributes," says Ms Barnes. If the experts are correct, the global property surge is over. However, few expect a crash, provided interest rates stay relatively low, as demand remains strong and top-end property in short supply.

"Just because things look expensive does not mean there is a bubble ready to burst," says Ms Barnes.

The days of making fast money are over. However, sensible long-term investors should continue to profit from modest rises in rents and house prices. "We expect to see a much closer relationship between rental growth and capital growth. Progress should be steady, but not spectacular," Ms Barnes adds.

The property market may have plateaued but there are still opportunities if you look for them.

pf@thenational.ae

Follow The National’s Business section on Twitter

RESULTS

Men
1 Marius Kipserem (KEN) 2:04:04
2 Abraham Kiptum (KEN) 2:04:16
3 Dejene Debela Gonfra (ETH) 2:07:06
4 Thomas Rono (KEN) 2:07:12
5 Stanley Biwott (KEN) 2:09:18

Women
1 Ababel Yeshaneh (ETH) 2:20:16
2 Eunice Chumba (BRN) 2:20:54
3 Gelete Burka (ETH) 2:24:07
4 Chaltu Tafa (ETH) 2:25:09
5 Caroline Kilel (KEN) 2:29:14

What is the FNC?

The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning. 
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval. 
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
 

Company%20Profile
%3Cp%3E%3Cstrong%3ECompany%20name%3A%20%3C%2Fstrong%3ENamara%0D%3Cbr%3E%3Cstrong%3EStarted%3A%20%3C%2Fstrong%3EJune%202022%0D%3Cbr%3E%3Cstrong%3EFounder%3A%20%3C%2Fstrong%3EMohammed%20Alnamara%0D%3Cbr%3E%3Cstrong%3EBased%3A%20%3C%2Fstrong%3EDubai%20%0D%3Cbr%3E%3Cstrong%3ESector%3A%20%3C%2Fstrong%3EMicrofinance%0D%3Cbr%3E%3Cstrong%3ECurrent%20number%20of%20staff%3A%20%3C%2Fstrong%3E16%0D%3Cbr%3E%3Cstrong%3EInvestment%20stage%3A%20%3C%2Fstrong%3ESeries%20A%0D%3Cbr%3E%3Cstrong%3EInvestors%3A%20%3C%2Fstrong%3EFamily%20offices%0D%3Cbr%3E%3C%2Fp%3E%0A
Specs

Engine: Dual-motor all-wheel-drive electric

Range: Up to 610km

Power: 905hp

Torque: 985Nm

Price: From Dh439,000

Available: Now

BMW M5 specs

Engine: 4.4-litre twin-turbo V-8 petrol enging with additional electric motor

Power: 727hp

Torque: 1,000Nm

Transmission: 8-speed auto

Fuel consumption: 10.6L/100km

On sale: Now

Price: From Dh650,000

Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
The National's picks

4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young

SCHEDULE

Saturday, April 20: 11am to 7pm - Abu Dhabi World Jiu-Jitsu Festival and Para jiu-jitsu.

Sunday, April 21: 11am to 6pm - Abu Dhabi World Youth (female) Jiu-Jitsu Championship.

Monday, April 22: 11am to 6pm - Abu Dhabi World Youth (male) Jiu-Jitsu Championship.

Tuesday, April 23: 11am-6pm Abu Dhabi World Masters Jiu-Jitsu Championship.

Wednesday, April 24: 11am-6pm Abu Dhabi World Professional Jiu-Jitsu Championship.

Thursday, April 25: 11am-5pm Abu Dhabi World Professional Jiu-Jitsu Championship.

Friday, April 26: 3pm to 6pm Finals of the Abu Dhabi World Professional Jiu-Jitsu Championship.

Saturday, April 27: 4pm and 8pm awards ceremony.

MATCH INFO

Uefa Champions League semi-final, first leg

Tottenham v Ajax, Tuesday, 11pm (UAE).

Second leg

Ajax v Tottenham, Wednesday, May 8, 11pm

Games on BeIN Sports

The years Ramadan fell in May

1987

1954

1921

1888

Our family matters legal consultant

Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.

MATCH INFO

Uefa Champions League, semi-final result:

Liverpool 4-0 Barcelona

Liverpool win 4-3 on aggregate

Champions Legaue final: June 1, Madrid

If you go

The flights
There are various ways of getting to the southern Serengeti in Tanzania from the UAE. The exact route and airstrip depends on your overall trip itinerary and which camp you’re staying at. 
Flydubai flies direct from Dubai to Kilimanjaro International Airport from Dh1,350 return, including taxes; this can be followed by a short flight from Kilimanjaro to the Serengeti with Coastal Aviation from about US$700 (Dh2,500) return, including taxes. Kenya Airways, Emirates and Etihad offer flights via Nairobi or Dar es Salaam.   

Benefits of first-time home buyers' scheme
  • Priority access to new homes from participating developers
  • Discounts on sales price of off-plan units
  • Flexible payment plans from developers
  • Mortgages with better interest rates, faster approval times and reduced fees
  • DLD registration fee can be paid through banks or credit cards at zero interest rates
Diriyah%20project%20at%20a%20glance
%3Cp%3E-%20Diriyah%E2%80%99s%201.9km%20King%20Salman%20Boulevard%2C%20a%20Parisian%20Champs-Elysees-inspired%20avenue%2C%20is%20scheduled%20for%20completion%20in%202028%3Cbr%3E-%20The%20Royal%20Diriyah%20Opera%20House%20is%20expected%20to%20be%20completed%20in%20four%20years%3Cbr%3E-%20Diriyah%E2%80%99s%20first%20of%2042%20hotels%2C%20the%20Bab%20Samhan%20hotel%2C%20will%20open%20in%20the%20first%20quarter%20of%202024%3Cbr%3E-%20On%20completion%20in%202030%2C%20the%20Diriyah%20project%20is%20forecast%20to%20accommodate%20more%20than%20100%2C000%20people%3Cbr%3E-%20The%20%2463.2%20billion%20Diriyah%20project%20will%20contribute%20%247.2%20billion%20to%20the%20kingdom%E2%80%99s%20GDP%3Cbr%3E-%20It%20will%20create%20more%20than%20178%2C000%20jobs%20and%20aims%20to%20attract%20more%20than%2050%20million%20visits%20a%20year%3Cbr%3E-%20About%202%2C000%20people%20work%20for%20the%20Diriyah%20Company%2C%20with%20more%20than%2086%20per%20cent%20being%20Saudi%20citizens%3Cbr%3E%3C%2Fp%3E%0A
The specs

Engine: Four electric motors, one at each wheel

Power: 579hp

Torque: 859Nm

Transmission: Single-speed automatic

Price: From Dh825,900

On sale: Now

Hili 2: Unesco World Heritage site

The site is part of the Hili archaeological park in Al Ain. Excavations there have proved the existence of the earliest known agricultural communities in modern-day UAE. Some date to the Bronze Age but Hili 2 is an Iron Age site. The Iron Age witnessed the development of the falaj, a network of channels that funnelled water from natural springs in the area. Wells allowed settlements to be established, but falaj meant they could grow and thrive. Unesco, the UN's cultural body, awarded Al Ain's sites - including Hili 2 - world heritage status in 2011. Now the most recent dig at the site has revealed even more about the skilled people that lived and worked there.

Brief scores:

Manchester United 4

Young 13', Mata 28', Lukaku 42', Rashford 82'

Fulham 1

Kamara 67' (pen),

Red card: Anguissa (68')

Man of the match: Juan Mata (Man Utd)

The five pillars of Islam

1. Fasting 

2. Prayer 

3. Hajj 

4. Shahada 

5. Zakat 

The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.

Read part three: the age of the electric vehicle begins

Read part two: how climate change drove the race for an alternative 

Read part one: how cars came to the UAE

The five pillars of Islam

1. Fasting

2. Prayer

3. Hajj

4. Shahada

5. Zakat 

The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE. 

Read part four: an affection for classic cars lives on

Read part three: the age of the electric vehicle begins

Read part two: how climate change drove the race for an alternative 

UAE currency: the story behind the money in your pockets
Fast%20X
%3Cp%3E%3Cstrong%3EDirector%3A%3C%2Fstrong%3E%20Louis%20Leterrier%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EStars%3A%3C%2Fstrong%3E%20Vin%20Diesel%2C%20Michelle%20Rodriguez%2C%20Jason%20Statham%2C%20Tyrese%20Gibson%2C%20Ludacris%2C%20Jason%20Momoa%2C%20John%20Cena%2C%20Jordana%20Brewster%2C%20Nathalie%20Emmanuel%2C%20Sung%20Kang%2C%20Brie%20Larson%2C%20Helen%20Mirren%20and%20Charlize%20Theron%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%203%2F5%3C%2Fp%3E%0A