Globaleye.com

As I sit here drafting up notes for compilation to my latest literary offering, I overhear the headlines on Sky News.  Markets are tumbling and investors are running for cover, experts are being grilled on what is going to happen next and nobody can really put their finger on why this correction is happening. There seems to be an air of disbelief among the highly polished presenters who are undoubtedly calling their Broker while out of camera shot. And the whole time, they seem to be totally oblivious to the age old fact that markets can (and do) go down as well as up.

Admittedly, this age old phrase never instills a great deal of confidence and one that professionals use sparingly when 5% is wiped off the S&P within the same time it takes to say “diversification”. The recent market upset had no definitive culprit at which to point the finger of suspicion which history normally offers; Black Monday, Asian Currency Crisis, 9/11 and so on. Clearly there are fears that the largest economy could slide further towards recession on the back of the bad news from the credit crunch/sub prime and a weakening housing market. Couple this existing scenario with Mr. Bernanke of the US Fed, without any consultation it would appear, to suddenly announce a 0.75% rate cut.

Let’s remember this article is supposed to Property related and certainly the only good news to come out of this market mayhem is the fact that interest rates are being slashed in order to encourage borrowing and help revive US Inc. and many other economies that rely heavily on the performance of the greenback.

The United Arab Emirates remains pegged to the dollar so sure this should spell good news for Dhs borrowers and the performance of their property and stocks. Let’s tackle those points in the order they were raised because the rosy picture that you think is being painted could only be the primrose path to fools paradise.

Lenders in the United Arab Emirates have been given a lot of stick for not providing attractive borrowing rates when the pegged counter party seems to be dropping all the time. If indeed we are pegged then why does this not reflect in the borrowing rates that are available in the United Arab Emirates? In essence, there are two main factors namely there are not enough Banks operating in this market to create the competition to drive rates down and service levels up. Moreover, remember this is an emerging market and as such, Lenders do not have the same level of comfort when offering finance solutions since they have no track record to base future predictions (even though this is only a guide to future performance) not to mention a weak legal structure for Lenders as it stands today. Hence, local Lenders see this as risk lending and as such the rates remain high and the LTV’s wide.

So we now recognize that United Arab Emirates Lenders are not keen to follow interest rates down as we see on the pegged US currency but there remain differentials which are worth looking at (and finding!). It astounds me by the amount of research people do in trying to locate the best car loan, cheapest insurance (not always the best idea!) and lowest interest bearing credit card. Credit card companies in the western hemisphere have so much competition that many offer 0% interest incentives which if you are conscientious enough you can move your credit balance around and pay no interest at all! However, very few consumers make the same effort or research to achieve the same result on what is their largest debt – their mortgage. The concept of a Mortgage Broker is lost in the United Arab Emirates market still and most of the real estate agents (who view them as a delay to their commissions) rarely employ their services. That said, if we recognize that there are some banks that are looking to offer more attractive mortgage packages in order to gain market share, then it is likely you will only find out about this from a Broker – someone who has their ear to the ground, works with credit committees (not clerks) and is far better at the job then you will ever be. I do not know any professional in Dubai who has time to become a mortgage expert too – just like when my car breaks down, I give it to a garage to get it fixed not take up a mechanics course.

For example, here are two loans available in Dubai; a worse case scenario and better case …

Better …

LTV over 75%     :                            AED 3,000,000.00

Period                   :                          300 months

Interest rate      :                               6.55%

Repayment        :                              AED 20,350.04

 

Worse…

LTV over 75%     :                            AED 3,000,000.00

Period                   :                          300 months

Interest Rate     :                               9.5%

Repayment        :                              AED 26,210.90

Clearly the savings speak for themselves and the minuscule fees you may be paying to a Broker are far outweighed. As the penny continues to drop in this market and the need to gain sound financial advice prior (I mean prior!) to moving ahead on any property project, we have many investors coming to us to re-finance their existing arrangements, re-broking their over priced insurance and since it has been raining recently, getting some home cover to boot! There are lower rates available and we hope that the recent market movements will initiate further falls – we hope to be able to tell you where those deals are.

With regards to your property performing, I would suggest that the usual dynamic of supply and demand will be a larger contributing factor locally since I think Dubai will remain insulated from property movements in the US market. That said, there is continued pressure for Developers to bring projects in on time and on budget if they are going to maintain the profits they currently enjoy. There is massive demand on the global commodity market and as such the prices of cement, rebar, wood etc are rising steadily. If your Developer has not bought forward sufficient materials to complete the project in which you have invested, then you could be asked to open your wallet again.

With regards to the stock markets, apart from the Dubai and Abu Dhabi markets being some of the worst performing markets worldwide in recent times, as I conclude this article I hear that the major indices are recovering and some French SocGen banker is on the run for the largest fraud in history. It seems to have all blown over, who knows what all the fuss about and the vagaries of the investment world can be removed from the Sky headlines once again – or is this just a dead cat bounce …?