Wednesday, November 12, 2008
By Faryal Najeeb

KARACHI: As property markets in the United Arab Emirates (UAE) face a critical slump, local investors are turning away from the Arab country and are starting to look towards Pakistan, Malaysia and Turkey.

Experts in the field say all the investment money that had flown out of the country towards Dubai and other emirates is now coming back.

“Ajman is completely dead, whereas Dubai, which had 13 per cent of Pakistani investors’ money in the real estate sector, is left grappling with eight per cent,” stated Munir Sultan, Senior Vice-Chairman of the Federation of Pakistan Chambers of Commerce and Industry Sub-committee on Housing and Construction.

“The UAE has injected about $40 billion for lending purposes, and mortgage lender Amlak has had to be merged owing to fears of bankruptcy,” said Sultan. He explained that Pakistanis had booked properties in Dubai and Ajman to make a profit, but eventually discovered that they had incurred a loss after being swindled by several middlemen.

“There were no builders, and of course, a structure cannot stand on its own without one.”

He revealed the UAE market had declined by 21 per cent. According to him, local investors who had invested in the Arab country were mostly those who had dipped one hand in shares of the local stock exchange, and the other in UAE real estate.

“Since both have been hit hard at the same time, these investors are feeling the pain. It’s disastrous for Pakistani investors.” Sultan further said the reason for the downtrend is an imbalance between the demand and supply in the UAE real estate market. He expatiated the rapid pace of construction in Dubai had led to saturation in the market.

The population level did not match the supply in the market, and eventually led to demand being next to nil. By way of example, Sultan pointed out that when the concept of freehold was introduced in Dubai, the pioneer one-unit villa projects had cost 1.5 million dirhams and reached as high as Dhs3.5 million during the peak of business. Today, the same projects cost Dhs2.8 million per villa.

He said however, not all is bleak for the local Pakistani investors who can now turn to both Pakistan and Malaysia. Malaysia remains the preferred alternative, as its currency is the closest to UAE dirham in terms of the exchange rate.

Malaysia also has international buyers, a strong tourism industry, cheap labour, and freehold properties. ‘Malaysia- My second home’ is a government-owned scheme that has charm for Pakistani investors, particularly in light of how Dubai changed its visa policy and dropped the permanent residency clause for foreigners. Nevertheless, Sultan commented Malaysia has lower profit margins compared to the UAE and even Pakistan. “Malaysia is a tourist-based country,” said he. “Its population is much higher than the UAE, but the real estate sector has not been attractive in the past two years. The stagnant market has turned off investors, whose aim is to maximise investments and earn profits.

Sultan believes that with Malaysia, it is not likely that investors will be able to gain profits any time soon. Yet another country, Pakistani investors had look, was Turkey, but he said that here, too, low profits have discouraged them. “They (investors) have returned to the pavilion,” he remarked. Sultan added that there the local market was buzzing with the positive vibes of a ‘buying market’, and that the response to new projects had so far been good.

“All those rumours about banks being defaulted and the freezing of lockers had a good effect on real estate, if nowhere else,” he said. “People took out their money in bulk, and when they did not know what to do with all the cash, they invested in properties. Normally, we have builders launching projects during Eid, and this season, we witnessed a large number of projects than usual.” As the cost of building material edges down, so the cost of construction, according to Sultan, encourages new projects. He predicted the real estate market will have stabilised by 2010. “However, the next ten days are crucial,” warned Sultan. “Dubai is expected to slide down by a further 17 to 18 per cent.”

Source: thenews.com.pk

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