Property and Real Estate Prices in Dubai Will Be in the Tank the Next Two Years

Dubai Government officials have tried to sound upbeat in recent days, saying that the ‘bad times’ are now in the past, and that might be technically correct – with property and equity prices now so low that the additional possible downside is limited. Yet there are few in local business who do not see a hard road ahead.

Dubai Land Department figures showed some buyers getting extraordinary bargains last week with a total of 12 villas changing hands for an average of $286,000 each, and 535 apartments sold for an average price of $193,000. Agents talk of ‘distress selling’ and indeed at these price levels the downside is relatively low for buyers.

$10bn bond

However, the idea that the $10 billion raised from the UAE Central Bank in a government bond issue will restore the Dubai boom look wide of the mark. This is a substantial sum. But there are billions in loans to refinance, interest to pay on $80 billion in total debts and a lot of money now outstanding to contractors.

Dubai has the unenviable task of unwinding a real estate boom in the face of the worst global economic crisis since the 1930s. That is a major challenge even with the rich UAE federation as a lender of last resort.

There are difficult choices ahead. It is already clear that construction work is proceeding at full speed on The Palm Jumeirah, Downtown Dubai and the Burj Dubai and Business Bay. On many other sites across the city work has stopped, and it is hard to see how this will restart anytime soon.

Global trade has fallen off a cliff in the first quarter of 2009, and Dubai as the trading hub of the Middle East has clearly been affected.

The oil market also looks unreasonably weak given this collapse in trade and slumping economies around the globe. The International Energy Agency has warned that oil demand will drop by 2.4 million barrels per day in 2009, citing a growing consensus that economic recovery will be delayed until at least 2010…SOURCE

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Oil’s Last Hurrah?: Why the Gulf May Never See $100 a Barrel Oil Again

When the Saudis upped their output to try to save the Republicans in Washington last Summer, few thought that  it would be the beginning of the same time of glut that hit in the early 1990’s when gasoline dropped to under $1.00 per gallon in the U.S.  However, that’s exactly where things are headed now.  It’s another perfect economic storm for the oil producers.  Demand crashed just as the KSA was trying to leverage political power in Washington D.C. through oil.  This was supposed to keep the economy on-track until after the November elections.  However, the wheels came off the economy a few months earlier than expected (in October).  This left OPEC in a very bad position.

Now, the price has fallen so much that there is almost no safety net.  Virtually every OPEC member (with the exception of Abu Dhabi @ $25) are at or below break-even pricing for oil.  This is going to put huge pressure on the Gulf economies going forward.

The bigger question is what happens to price now?  The situation is very similar to the crash of the early 1990’s.  Unless OPEC gets serious about controlling supply, I may take 5-10yrs to get the price where the Gulf economies want it. However, the push to keep some revenues coming in will keep the oil flowing.  OPEC’s problems will be much bigger over this price breathing space.  The world is gearing up to give up oil.  Alternative vehicles of many different types will come online over the next few years.  This will keep a permanent downward pressure on oil prices from about 5 years out when the manufacture and sales of such vehicles reach critical mass.

In the near term, oil will see $20 a barrel long before it reaches $100 again.  Peak oil theory is dead.  The new theory is ‘dead oil’.  Within 20 years the oil market will be relatively insignificant on the global stage. And, unless the Gulf can reposition itself economically there will not be a positive future going forward.

Here is the latest article on oil price from the Gulf News:

Oil dips to four-year low

http://archive.gulfnews.com/articles/08/12/05/10264892.html

12/04/2008 11:35 PM | By Himendra Mohan Kumar and Shakir Husain Staff Reporters

Abu Dhabi/Dubai: The price of global benchmark crude on Gulf News fell to below $46 (Dh168.9) per barrel to its lowest in nearly four years, causing more concern among major producers about the commodity’s sliding value.

Leading members of the Organisation of Petroleum Exporting Countries (Opec) with huge infrastructure projects to fund are worried about their shrinking export revenues.

With the prospects of global economic growth weakening, oil has shed about two-thirds of its value since July when it traded more than $147 per barrel.

In yesterday’s early trading, US light crude for January delivery was down 57 cents to $46.22 a barrel. It earlier touched a low of $45.30, the lowest since February 9, 2005. London Brent crude was down 67 cents at $44.77.

Yesterday Iran said $75 a barrel was a fair price, echoing earlier comments by Saudi Arabia’s King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi.

Iran also believes that the market is oversupplied and producers should cut output to balance the fundamentals of supply and demand.

“It is obvious that the market is oversupplied,” Reuters quoted Iran’s Opec governor Mohammad Ali Khatibi as saying.

Opec will announce a production cut at its meeting in Algeria later this month, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah told reporters in Dubai on Wed-nesday.

Industry analysts said the fall in oil price could harm the Gulf economies, but for now these countries are cushioned against lower crude prices because of the financial reserves they have accumulated from the previous high revenues.

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