Everyone knows the saying that there is only one thing man is not making more of – land. In recent years however, even this cliché has been pulled apart by many states creating artificial islands through “land-reclamation” – a term that conjures images of gracious developers almost “rescuing” precious land from the evil sea (sounds familiar Dubai and others across the Gulf?). The sight of hundreds of bulldozers and countless construction workers raising new foundations on a site that only six months earlier had been in the middle-of-the sea is certainly a testament to how ingenious and advanced man’s building techniques have become. It is as if the masterminds behind these projects are pointing a finger at the great creator and saying “look – I can do it too!” – isn’t the ego a wonderfully dangerous thing?
However, only yesterday, mother nature herself reminded us that we are but visitors on this land, as new islands were created (much faster than those in Dubai) with the eruption of an underwater volcano off the coast of Tonga in an awesome display-of-power that served to truly put much into perspective. No quantity of slick marketing and gimmicking - no sign of David Beckham buying a plot on the newly formed Tonga islands – could compare to the shock-and-awe of natural creation – not even the Fed’s surprise $1.5trn quantitative easing created such tremors.
Despite nature’s best attempts at helping us out in this financial crisis, global real estate prices in the last year have plummeted (40% avg. year-on-year). Sharp declines have occurred across the once shining-holiday-homes on Florida’s sun-kissed beachfronts, to the still highly desirable I-know-it’s-as-big-as-a-closet-in-any-other-flat-but-it’s-in-Chelsea-darling cramped one bedroom apartments in central London. We have been subjected to arguably the widest property-bubble burst in history. Hong Kong’s market has all but disappeared, with landlords there not only accepting ridiculously low prices for outright purchase of their properties, but also humble in the face of a dwindling rental market – some contracts have been re-signed there at 80% discounts. From Shanghai to Mumbai and (via Dubai) Belgrade to Rio, brand new property developments around the world have come to a stand-still, with no manner of incentives in the form of gleaming gyms and pools (or even new cars thrown in on signing – a GCC marketing favourite) able to entice hard-up buyers. Surely this will all reverse as inflation returns and consumers once more partake in the “I’m not the last fool standing” game of musical-chairs.
For now though, there are some great bargains for those fortunate enough to hold cash ($2m priced houses a year ago now going for $700k), or savvy enough to negotiate and squeeze their landlords. The best analogy for the property market over the last 18mths is expressed by the world’s newest and steepest rollercoaster ride (at Thorpe Park in the UK). Apparently you start off being slooowly rolled up a very long incline that provides you with the briefest of glimpses at the top, only to tip over the agonizingly high plateau and sent hurtling downwards at a 100 degree angle with the equivalent force of 4G through a dark tunnel - then sent upside down, sideways, upside down again and who knows what direction to come to a screeching halt where you are left with your nerves frazzled and stomach contents ungainly rearranged – many recent home-owners have endured a similar thrilling ride, at a much higher cost of admission, without ever having strapped themselves in.
In the Gulf especially, Bahrain, Dubai and even Qatar have seen dramatic falls in real-estate valuations. The once boisterous estate-agent sat next to you in one of Dubai’s many buzzing-restaurants has all but disappeared – one of the positive side-effects I believe. Where before they would way-lyrical in between gulps of champagne about the “latest and greatest” flat that you “simply must snap-up” (before laying of the first steel girder even – completion in 2012 if you were lucky) talk is now of mitigating losses on your past “investments”.
A welcome development for many is the re-negotiation of rental contracts. I have heard of some Bahraini tenants declaring themselves unable to continue with their contractual tenors, resulting in the landlord immediately offering a 30% reduction in annual rent – the savvy Bahraini tenant though smells blood and still declares themselves unable to continue, hence exacting a further 40% reduction to the agreement. In Doha, on the ultra-exclusive and luxurious Pearl Islands, viewing appointments once more elusive than a ticket for Michael Jackson’s concerts at the O2 in the UK, are now offered as easily as free flyers for the latest meal-deals across Dubai’s malls. Abu Dhabi, with a combination of luck and a dashing of laziness, is the only GCC market experiencing rental price increases.
There are many stories like this all around the GCC (and the world of course) but one of my favourites is a case in Dubai where one unlucky couple discovered that sometimes in you life you should be careful what you wish for: Living in a lovely modern building with desirable amenities, the tenants were coming to the end of their contract and wanted to take advantage of the current rental environment without having to unduly trouble themselves with a laborious move. Luckily they found an available identical apartment on offer at 40% lower annual rent one-floor below (I know - I did say they were lucky). They promptly signed the new contract with a big smile on their faces and lay back on their sofa with a smug warm feeling. A couple of nights in though, and they were violently woken by some deep thudding from above. They endured two sleepless nights to then discover that the new (quite unfriendly) tenant that had moved into their previous upstairs apartment (for 25% less rent by the way) was a budding-drummer with some strange sleeping habits!
Oh well, at least they were still saving money if not their sanity – and they could always make a move to those brand new islands that have just come onto the market off the coast of Tonga.
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