The Fall of Real Estate in Dubai

Three years ago, real estate business had been considered the most feasible business in Dubai – now no more. Compared to trading industry, real estate is a dead business nowadays.

When I first joined Real Estate company I had witnessed how good the business was. I could imagine those busy days when people are flocking to our office to pay and sign the tenancy contract without negotiating the price or even ask for the total floor area – with or without services, furnished or unfurnished, with or without balcony. Our construction engineers are always on their good times. Every turnover of the projects to our clients promises them monetary freedom. Likewise, every successful business deal means huge commission to deceitful and greedy agents.

Money was not a problem to my boss. Just a click of the mouse or a drop call to his favorite agents he could make millions of bucks. There were several times that single transaction brought him 4M dirhams mark-up. As a result monthly charitable contributions were maintained and advances to employees were approved without a bit of hesitation.

The scenario had completely changed. The recession, like the plague of the ancient times, enveloped the whole world and destroyed our economy. Most people would ask, “does Obama help our economy?” Everyone is doubtful. But what is certain is that until this very time recession have not subsided. Everyone is affected. Many companies shut down. Many workers are repatriated. Businesses are not usual.

Today, real estate business is moving in a snail pace. Many apartments and commercial complexes are empty. Tenants are terminating their contracts without giving valid reasons. Our units in Al Barsha and Mirdif have dropped their occupancy rate by 30% in the last two months. I am afraid this will generate more losses in the future.

For those who are in the field of real estate like me, whom the banks refuses to grant any types of loan amidst numbers of references, hopes and prayers are the only powerful tool to survive.

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FIRST PROTECTOR: Does it really protect?

Two weeks ago, I called the bank to cancel my First Protector program as I don’t need this and it is a just a waste of money. Imagine the 0.79% p.m. deduction from your current outstanding balance. If you don’t pay your account in full when it’s due, then, expect this miscellaneous deduction.

On one hand, First Gulf Bank credit cardholders need this credit shield considering that the current scenario of Dubai is still miserable. This program showcases various benefits to the cardholders. Among its benefits are as follows:

• Death – The amount of Cardholder’s indebtedness at the date of death up to AED100,000 or credit limit whichever is lower.
• Permanent Total Disability – The amount of Cardholder’s indebtedness from the date of permanent total disablement up to AED 100,000 or credit limit whichever is lower.
• Involuntary Loss of Employment – The amount equaling to 10% of Cardholder’s indebtedness, subject to a maximum amount of AED 4,000 payable for every month of unemployment up to a maximum period of 12 months.
• Robbed or stolen cash – a maximum limit of AED 500.
• Fraudulent transactions on lost or stolen Credit Cards at a maximum limit of AED 7,000
• Loss of Keys and Identification Papers – a maximum limit of AED 300 for keys and a maximum limit of AED 700 for identification papers

On the other hand, this is a bank strategy of collecting money from the cardholders as this time of crisis where banks are greatly affected they need to do their best to survive at the expense of its debtors. Sad to say, all banks have this scheme.

This morning, a certain Ms. Mysa from the First Gulf Bank phoned me to reactivate the First Protector. She had explained me everything, emphasizing the third benefit of the program: Involuntary Loss of Employment. After her ten-minute speech I realized that I have to finish my report for our weekly meeting. Without any clarifications, I told her to reactivate it immediately.

Well, it’s not because I have a very urgent work to finish and I don’t want to waste my time listening the same story. She had the point. This time our works are not stable and we need this kind of program that will protect us from our debts. I am not pessimistic. I did this because of a “what if” theory. What if my company shut down?

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HOW RECESSION AFFECTS UAE?

This is a forwarded e-mail from my friend, Vinoj. For Vinoj, thank you so much for sharing this information. This is all about the projects in the United Arab Emirates which are currently on-hold or canceled. Some of these projects are owned by giant companies like Nakheel, which is a semi-government company. This is how recession affects the country. Many have lost their job especially in the field of real estate. Many have whined but this is the reality - it's not only affecting few people. It's affecting all of us. PLEASE CLICK THE PICTURE TO ENLARGE.



How far this recession go? If you have any bright ideas please feel free to comment on this post.

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Job for Jordan

My friend and college classmate, Jordan, phoned me last night. He informed me that he found a job in one of the consultancy firms in Sharjah. I could sense through his voice that he was happy - happy because for almost two months of seeking for a suitable position he finally landed on the right one. Well, I congratulated him. If his company gives him the right compensation, then, he is in the right track. I am happy for him.

But I could not keep myself from worries. I have heard many complaints about some of the companies in the UAE. There are companies that don’t pay good salary. Some companies also don’t provide visa and working permit. What if because of the recession Jordan’s employer will not process his residence visa and will not give him a lawful salary? Actually, he admitted that he will be getting a salary which is below the current minimum wage in Sharjah. But he has no choice. He needs to survive. If he does not accept the salary offer the company will not care. Many jobless needs work regardless how small the salary is.

Jordan is one of those people I respect. He is intelligent and had always been admired by our Accounting instructors for his accuracy. He is a good accountant with long-term experience in banks. The company where he is now must be blessed. Jordan is an asset. With his expertise and dedication in his work, the company will never regret of hiring him.

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Coping with global crisis

The global financial crisis of 2008–2009 is an ongoing major financial crisis. It became prominently visible in September 2008 with the failure, merger, or conservatorship of several large United States-based financial firms. The underlying causes leading to the crisis had been reported in business journals for many months before September, with commentary about the financial stability of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis.
Beginning with failures of large financial institutions in the United States, it rapidly evolved into a global credit crisis, deflation and sharp reductions in shipping resulting in a number of European bank failures and declines in various stock indexes, and large reductions in the market value of equities (stock) and commodities worldwide. The credit crisis was exacerbated by Section 128 of the Emergency Economic Stabilization Act of 2008 which allowed the Federal Reserve System to pay interest on excess reserve requirement balances held on deposit from banks, removing the longstanding incentive for banks to extend credit instead of hoard cash on deposit with the Fed. The crisis led to a liquidity problem and the de-leveraging of financial institutions especially in the United States and Europe, which further accelerated the liquidity crisis, and a decrease in international shipping and commerce. World political leaders and national ministers of finance and central bank directors have coordinated their efforts to reduce fears but the crisis is ongoing and continues to change, evolving at the close of October into a currency crisis with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund. The crisis was triggered by the subprime mortgage crisis and is an acute phase of the financial crisis of 2007–2009.

Since the global financial crisis started mainly in the United States, ways, actions and strategies must start also in the US. Let me cite some ways of coping with this global dilemma that the US had already started or should have started.

The Federal Reserve, Treasury, and Securities and Exchange Commission took several steps on September 19 to intervene in the crisis. To stop the potential run on money market mutual funds, the Treasury also announced on September 19 a new $50 billion program to insure the investments, similar to the Federal Deposit Insurance Corporation (FDIC) program. Part of the announcements included temporary exceptions to section 23A and 23B (Regulation W), allowing financial groups to more easily share funds within their group. The exceptions would expire on January 30, 2009, unless extended by the Federal Reserve Board. The Securities and Exchange Commission announced termination of short-selling of 799 financial stocks, as well as action against naked short selling, as part of its reaction to the mortgage crisis.

The US must work quickly in a bipartisan fashion to resolve this crisis and restore its financial sector so capital is flowing again and it can avert an even broader economic catastrophe. It also should recognize that economic recovery requires the US to act, not just to address the crisis on Wall Street, but also the crisis on Main Street and around kitchen tables across America.

Even if the Treasury recovers some or most of its investment over time, this initial outlay of up to $700 billion is sobering. And in return for their support, the American people must be assured that the deal reflects some basic principles.

• No blank check. If the US grants the Treasury broad authority to address the immediate crisis, it must insist on independent accountability and oversight. Given the breach of trust it had seen and the magnitude of the taxpayer money involved, there can be no blank check.

• Rescue requires mutual responsibility. As taxpayers are asked to take extraordinary steps to protect US financial system, it is only appropriate to expect those institutions that benefit to help protect American homeowners and the American economy. American people cannot underwrite continued irresponsibility, where CEOs cash in, regulators look the other way. The US cannot abet and reward the unconscionable practices that triggered this crisis. It has to end them.

• Taxpayers should be protected. This should not be a handout to Wall Street. It should be structured in a way that maximizes the ability of taxpayers to recoup their investment. Going forward, the US needs to make sure that the institutions that benefit from financial insurance also bear the cost of that insurance.

• Help homeowners stay in their homes. This crisis started with homeowners and they bear the brunt of the nearly unprecedented collapse in housing prices.

• A global response. This is a global financial crisis and it requires a global solution. The United States must lead, but it must also insist that other nations, who have a huge stake in the outcome, join the US in helping to secure the financial markets.

• Main Street, not just Wall Street. The American people need to know that they should feel the great sense of urgency about the emergency on Main Street as they do the emergency on Wall Street. American leaders must extend their hands in supporting an emergency economic plan for working families — a plan that would help folks cope with rising gas and food prices, save one million jobs through rebuilding schools and roads, help states and cities avoid painful budget cuts and tax increases, and provide retooling assistance to help ensure that the fuel-efficient cars of the future are built in America.

• Build a regulatory structure for the 21st century. While there is not time in a week to remake US regulatory structure to prevent abuses in the future, Americans should commit themselves to the kind of reforms. They need new rules of the road for the 21st century economy, together with the means and willingness to enforce them.

The bottom line is that America must change the economic policies that led it down this dangerous path in the first place. For the last eight years, America had an 'on your own-anything goes' philosophy in Washington and on Wall Street that lavished tax cuts on the wealthy and big corporations; that viewed even common-sense regulation and oversight as unwise and unnecessary; and that shredded consumer protections and loosened the rules of the road. Ordinary Americans are now paying the price.
(Note: I do not claim the originality of this text.

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Recession Vs Depression

Depression and Recession are hot topics that experts argue about how to define, but which ordinary folk know when they see them. There is no exact definition of a depression, even now, more than 70 years after the last one ended. That is mainly because the Great Depression is pretty much the only example of the phenomenon that we have, and it is well beyond most people's living memory. The debate is not helped by the fact that, way back then, economic data were scratchy and unreliable at best.


I myself, at the beginning, don’t really understand what is meant by recession. For me, literally, recession comes from the root word recess that means break - recess of the senate session, court hearing and school classes. I was late to know and realize that recession on the broad perspective associates with economy. On the other hand, depression, as I define it, relates to tropical depression, great depression and psychological depression. That's the way I call it.

Gordon Brown, Britain's Prime Minister defines recession as a headlong economic retreat and depression for him means a disaster - a problem on a wholly different scale.
Some are calling our current recession the worst economic downturn since the Great Depression. It's a comparison most of us can't comprehend but if we tried to ask some folks who lived through the Depression to get some perspective, surely, too many senior citizens will be quiet, pensive on hearing the word depression. It was a time that shaped their lives forever. And it makes today's economic climate feel like paradise.

What we can say is that on the Richter scale of economic events a depression is a calamity, wreaking destruction on human misery on a wide scale that makes a common or garden recession look like a mere hiccup, and a bad recession — such as the one we now seem to be suffering — seem like a severe tremor, but no more.
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The best way to understand the relative scale of a depression, as generally understood, compared with a recession is to contrast the economic catastrophe in the US in the 30's with what is happening now, and what took place in the recessions of the 70's, 80's and 90,s.

Compare that with the experience of the Great Depression in the US. Then, US national income and output from the economy — GDP — collapsed by 30 per cent over a number of years: it dropped by 8.6 per cent in 1930 alone, and then by another 6.4 per cent in 1931, 13 per cent in 1932, and 1.3 per cent in 1933. Recovery in 1934 to 1937 was followed by a relapse. The proportion of the workforce lining up for the dole and at soup kitchens surged from 2 per cent to a quarter of those of working age, output from US factories halved, consumer prices fell by a quarter as the economy slid into deflation, four-fifths of the value of the US stock market was wiped out, from the Wall Street crash onwards, and house prices fell by nearly a third.

The great US crash of the Depression was the ultimate bust. It followed the Roaring Twenties, perhaps the ultimate boom, and sowed the seeds of the disaster that followed. The Depression was a heavy price to pay for the party of the century; the mother of all hangovers. Before the bust, Capital Economics notes that US house prices had surged by 70 per cent from the turn of the century until 1925; commodity prices rocketed in the wake of the First World War, in another echo of recent times; and share prices charged upwards.

Yet the British experience was very different. Britain skipped the Roaring Twenties, spending that decade in the doldrums. Come the Depression, Britain's experience was less searing, although undeniably painful. In the early Thirties, GDP plunged by about 5 per cent – so roughly twice as bad a fall as is expected in the present UK downturn on a worse case scenario. At the same time, share prices tumbled by more than two-fifths from their peak, and the unemployment rate doubled from 7 per cent to 15 per cent.

In reality, for Britain the period of the US Great Depression was less brutal than the start of the Twenties, when the exhausted nation paid the price for the toil of the Great War. No sooner had victory over Germany been secured, than economic defeat loomed, with the economy shrinking by 10.9 per cent in 1919, by 6 per cent in 2910 and by 8.1 per cent in 1921. Overall, during those three years the UK's GDP plummeted by 23 per cent, mirroring the fate of the US a decade later.

Depression may have no precise definition, but it not word to be bandied about carelessly, not a fate to be tempted.

I think economic depression is also leading to a psychological depression to those near the vortex of the event.
Even if the recovery starts by 2010 or 2011 the trauma of the episode is likely to linger on for years to come which is more worrying.

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How far do we go?

It is hard to get an exact description for the UAE property market at the moment. The Dubai Land Department figures continue to show a flow of regular sales albeit at distressed prices, while nobody is trying to sell at the price levels of last autumn is stuck with their real estate with no sign of a potential buyer.

According to the real estate agents 20-40% price reduction are now necessary to secure a sale. Dubai has been suffering a very sharp drop in prices, in a short period, but actually fairly typical of a market correction in an emerging one.

It is also true that lending conditions have become much tougher. I am new in real estate industry as an accountant. Almost every day I receive calls from our tenants requesting for holding their checks because they don’t have enough balance on their account, their salary has not yet transferred or processed. These are just simple alibis. As an accountant, I have no doubts that these people are telling me the half-truth. But what is more unbelievable is that when some tenants reasoned out that their personal loans have not yet approved or released by the bank. During the recession period, Dubai banks are becoming more conservative. Many banks are not granting anymore personal loans and credit cards especially to expatriates working in the real estate companies. A couple of weeks ago I was wondering why I couldn’t use my First Gulf Bank credit card. I called the customer service and found out that my credit limit was reduced. I was surprised. I did not even receive a notice about the reduction. Banks are desperate and dried up.

But it is an exaggeration to think that bank lending has dried up entirely in the UAE. Last week, my officemate received a ring from Standard Chartered Bank asking for possible customers for its mortgages. As a homeowner and without mortgages, the bank immediately agreed to lend her up to 70% of the value of her villa with a mortgage rate of around 8%.

I can see the bank’s risk is pretty low if an existing owner re-mortgages to buy a second property, but it certainly flies in the face of the idea that bank finance is impossible in the UAE right now. You might need a higher salary and require a higher deposit but it looks as if mortgages rates are already in decline. The UAE Central Bank base rate cut from 1.5% to 1% is having an impact.

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