Property prices in the once red-hot Middle East boomtown of Dubai plunged 41% in the first three months of this year.
Figures released today that suggest nearly two years of gains have evaporated.
The drop in the home price index compiled by property consultancy Colliers International marks the first consecutive quarterly decline and the first year-over-year slide since Dubai’s property boom began seven years ago.
“The heat has gone out the market completely,” Colliers Middle East Chief Executive John Davis said.
Dubai has staked much of its reputation on attention-grabbing property developments including the world’s tallest skyscraper and a near-empty archipelago resembling a map of the world.
Many of the city-state’s developers have strong ties to the government and rely on foreign workers, who send billions back home to families in Asia each year.
Colliers’ index, compiled with six local and international banks, measures prices in parts of Dubai where foreigners have been allowed to buy since the market was opened in 2002. Those areas were largely responsible for Dubai’s real estate boom.
The 41% drop from the previous quarter is the second decline in a row. Colliers reported an 8% drop in the last three months of 2008, which the company described as the first decline since the boom began.
The research firm cited several reasons for the decline, including some such as a lack of financing and worries about job security that have become common throughout much of the world.
Other factors were more specific to the Dubai market, where citizens account for only 10% of the population and typically already own their homes.
Colliers noted that a number of developers failed to provide sufficient details about their projects, creating an “information void (that) was quickly filled with negative market rumours.”
At the same time, investors enticed by low down payments in earlier years rushed to sell their holdings before final payments of as much as half the purchase price came due. People looking to buy homes to live in – known in the industry as “end users” – are now largely staying on the sidelines.
“We’re dealing with a completely different market,” Mr Davis said. “The speculators have all gone. The end users are extremely limited. ... The expatriate community is extremely concerned about employment prospects.”
Developers have responded to the downturn by slashing staff, renegotiating contracts and shelving scores of projects. The Dubai government last week said it has distributed about $5bn (€3.8bn) of loans to state-affiliated developers to help them cover unpaid bills.
Nakheel, the government-run developer best known for its manmade island developments, declined to say whether it received any of the government loans but did say it is “reassessing” business objectives to “accommodate the current economic climate.”
Emaar Properties, builder of the world’s tallest building in central Dubai, said this week none of its projects are on hold and that it is offering “several options” to help customers, including allowing buyers to transfer purchases of unbuilt projects to those nearing completion.