Home or away: raise your property stakes
After years of homes appreciating to unaffordable levels in the United Kingdom, suddenly the property market has opened up. And the US slump, which has seen prices in New York fall for the first time since 2000, is heralding ripe long-term investments for buyers.
Meanwhile, the UAE's real estate sector continues to extend its blistering growth record. And for locally based expats with spare cash, the conundrum is whether or not the real estate bargains overseas are tempting enough that it's worth ignoring the Emirates' dramatic growth potential.
To help make the best of a property hunt, we lay out the prospects for three markets poised for lucrative property investment.
United Kingdom: waiting game
Since last March, house prices in the UK have fallen by five per cent, according to data from Halifax, the country's biggest lender. Recent house price figures, including Halifax data showing that prices fell by 2.4 per cent in May alone, has prompted economists to forecast prices will slump by more than 20 per cent in two years.
The average cost of a home declined 0.9 per cent to £189,027 (Dh359,443) in April, from a year earlier, says mortgage lender HBOS.
The buzzword among browbeaten UK homeowners is negative equity – when a property is worth less than the mortgage debt – and according to the Council of Mortgage Lenders, more than 23,000 people who took 100 per cent loans for their homes are reeling after prices plummeted.
"The decline in house prices in the UK will last a lot longer than people think. It will be a few years before it fully recovers," says Antony Anderton, head of mortgages at Dubai-based brokerage firm Smith & Ken.
UK property is still fundamentally attractive at the moment despite the possibility of further price drops, he says. "Generally you should buy when a market is struggling, but you should do your homework and there will be locations where you could take advantage and the price will rise in coming years."
Further confirmation of opportunities in the UK market came from Bahrain-based Gulf Finance House (GFH), which this week published research indicating the time was right to capitalise on the slump in house prices.
"Until recently, we hadn't considered UK property as an attractive investment as the prices being paid simply did not make sense to us," the investment bank says.
But the negative for UAE residents dabbling in UK real estate is that speculators feel prices will get worse before they getter better.
United States: good deals across the board
The much-documented demise of the US housing market has thrown up some startling statistics that, for a would-be investor, make for interesting reading.
Home prices fell in 23 US metropolitan areas in March as the country is gripped by rampant mortgage defaults, according to New York-based research firm Radar Logic.
Prices in San Diego declined 27 per cent, while those in New York fell compared to a year earlier for the first time since Radar Logic began publishing data in 2000. Meanwhile, 243,300 properties were in some stage of foreclosure in April.
Miami tumbled 21.3 per cent, Tampa and Florida fell 18.8 per cent and San Francisco prices declined 17.6 per cent. Home prices in New York fell 4.7 per cent to $281 (Dh1,031) a square foot, the report said.
As sumptuous as these prices appear, don't head straight to an estate agent, says Smith & Ken's Anderton. "Consider approaching an independent financial adviser for impartial advice and check your finances are in order before going ahead with a buy."
He adds that after a period of accelerating house prices in the US and the UK, the bubble had burst and valuations were brought back down to reasonable levels again – but caution was still needed.
Indeed, investment bank Investcorp has signalled an easing of its investment in the US housing market, saying it expects the number of real estate acquisitions to decline by 33 per cent this year compared to 2007.
The company's co-head of Read Estate Investment Group, John R Fraser, put the decision down to limited access to project financing. "There is an interesting buying opportunity environment in the US today as pricing has softened. However, the number of buyers who were able to actually conclude deals has been reduced as debt financing is not readily available," he says.
United Arab Emirates: high potential
Expats looking at a purchase in the UAE are faced with a totally different set of considerations, with the major concern being when and how the price boom will end.
The country faces the threat of a real estate bubble, following the rapid increase in valuations in recent years.
The danger is that house prices will soar so high that they become unsustainable against salaries and costs of living. Uncontrollable inflation in the region is no secret and shows no sign of abating.
"A currency revaluation in an environment where the dirham is pegged to the US dollar could increase property prices and reduce foreign buying. Housing could become less affordable, given a recent upward price spiral that is expected to continue until 2009 at least," says a report by EFG-Hermes.
Sana Kapadia, research analyst at EFG-Hermes, adds: "Given the current supply and demand dynamics, where supply is not expected to catch up with demand over the next 18 to 24 months at least, prices and rents will continue to rise."
According to a survey by Betterhomes, the average cost of a home in Mirdif is Dh6.7 million, while an apartment in Jumeirah Beach Residence costs about Dh3.4m. Meanwhile, land prices in Dubai have risen 184 per cent in four years.
"There's more potential for growth here than in the UK," says Anderton. "We haven't hit a peak yet though, especially as demand increases as more people come here."
He also warns that in the UAE's infant housing market there were unseen dangers ahead. "We're entering unknown territory, so no one really knows what's going to happen. Also, if we had a property bubble that burst there's a lot of money invested in properties that are on-going so it could potentially lead to a severe economic downturn," he says.
Governments are doing all they can to calm the nerves of investors. Property laws are being drafted for buyers to deal with registered developers and brokers.
For buyers considering where to house-hunt, it seems Abu Dhabi and Dubai are still pegged as best bets, according to DSL Exhibitions. Abu Dhabi emerged as the place investors expect the highest appreciation in the short term, with almost half of respondents choosing it over other emirates.
"This is a clear signal to policymakers and administrators in the Northern Emirates that more needs to be done to improve the business and infrastructure set-ups," says Tessa Morris, marketing director at DSL Exhibitions.