DUBAI (Commodity Online): In the pre-crisis years, housing boom led to runaway growth in prices of many commodities including base metals, cement, construction materials, steel, glass and several other related commodities.
News reports indicate that none of the regions where the housing boom bust has returned to pre-crisis levels. Mortgage rates in USA are also down, with the 30-year fixed mortgage rate on Zillow Mortgage Marketplace at 4.58 percent, down nine basis points from 4.67 percent at this same time last week. This is the lowest rate recorded since Zillow Mortgage Marketplace launched in April 2008. The 30-year fixed mortgage rate peaked Friday at 4.75 percent and fell the same day to below 4.7 percent before decreasing slowly through the weekend into Monday.
UAE worst hit by real estate crisis
By the end of 2012, there will be an oversupply of residential property in Dubai of between approximately 110,000 and 115,000 units, according to two reports from Investment Boutique on Dubai and Abu Dhabi real estate market. These figures would suggest that close to 500,000 people, excluding unskilled expatriate workers, will need to immigrate to Dubai in order to fill the forecast supply.
“There were minimal transactions throughout most of the year and the numbers paled in comparison to the boom time era. There was constant downward pressure on both sales prices and lease rates that had landlords and owners competing for tenants and buyers for the first time in Dubai’s recent history. Units demanded decreased in 2009 due to a falling expatriate population,” the Dubai State of the Market Report 2010 by Investment Boutique states.
The firm expects the real estate sector in Dubai to remain fragile for the remainder of 2010, although it is believed that sales prices and lease rates are fast approaching their lowest point. “Affordability will be paramount going forward as speculators have left the market and demand is being created by end users. Downward pressure on prices is expected to continue until affordability matches income levels. The majority of demand is likely to remain for rentals as opposed to sales,” the report predicts.The biggest threat to the market in 2010 however, remains the looming threat of major oversupply.
The Dubai World restructuring plan is crucial to Dubai’s economy and will have a major influence on the real estate sector, the Dubai State of the Market 2010 report by Investment Boutique reveals. The standstill had a negative effect on the real estate sector in the early part of 2010, although efforts to revive the conglomerate through restructuring has instilled hope and improved business morale in the city, according to the firm.
Reuters reported that Irish commercial property prices have fallen 56.3 percent from their September 2007 peak. Prices in the UK have rebounded 14 percent since last July, but are still more than 30 percent down from their peak, as Europe struggles with the worst property downturn in decades.
Reuters quoting Brian Lancaster, head of securitized bond strategy for North America at RBS, said the real estate market, so long a drag on the U.S. economy, is near a bottom. Residential housing prices could still fall another 3 to 5 percent, but the rate of mortgages falling into delinquency “has slowed dramatically,” he said.
Investments in real estate have started picking up even as market revival is not in sight. Private equity firm TPG Capital and Green Property have formed a joint venture to invest up to 900 million euros ($1.2 billion) of debt and equity in real estate assets in the UK and Ireland, the companies said.
In recent times a spate of real estate IPOs hit the Indian market but investors continue to be pessimistic of such scrips considering the fact that such projects are a money spinner for the promoters but not necessarily for retail and institutional investors.
“I do not think there is too much pessimism looking at the kind of IPOs that keep coming out every now and then. I do not know whether they created wealth or not. They did create wealth for the promoters but not for the shareholders in general but I have always believed that is a business in which the promoter has a huge edge over the minority shareholder and you can buy them as trades but to buy them with spectacle that you are going to make a lot of money out of them, I do not think that logic holds,” according to Shankar Sharma, VC and Joint MD, First Global quoted in Economic Times.
