Australian Property Investment – Implications of the Dubai World Crises

So the emperor with no clothes in Dubai has finally been seen for what it is. News that Dubai World – who brought you such extravagances as “The World” artificial island not to mention the world’s highest skyscraper – has asked its bankers to give it a 6-month holiday from mortgage repayments. (Note to self – must try this with my mortgage provider!). The Australian stock market reacted on Friday with a rather predictable “crash” of some 3%. However by Monday after noon the ASX200 was back up 2.5% Australian investors having discovered that no major Australian bank was exposed to Dubai’s toxic real estate market. And that the United Emirates (of which Dubai is a member state) have come to the party guaranteeing individual states.

It is interesting to discover that Dubai is quite heavily invested in Australian port’s infrastructure and stevedoring services. Anyway the market seems to have settled down in the local stock market.  For property investors the whole scenario highlights the risks of investing in any market that you don’t know well and in particular in a place such as Dubai where the law and government system is so different to that of Australia and other commonwealth countries.

Dubai - tough market for property investors

Property investment is always subject to what is known as “environment risk” – that’s the risks you can’t control such as local government changing the law on residency qualification for investors, or the banks deciding that you need to provide an extra 10% by tomorrow. There is also the market sentiment risk – now everyone even slightly aware of the of the world scene probably thinks every piece of Dubai real estate is grossly over-priced. Whether you own a reasonable priced piece of Dubai property or not -that is the perception you will have to battle if you are planning on selling anytime soon, or even in the next 10 years.

One wonders what spin the next Dubai press release will put on recent events?

Even in Australia, holiday homes are always the first to take a battering in an economic downturn, very few of them are actually “essential” when the proverbial hits the financial fan. Investment in tourist resorts can also be difficult to make a good return on because of the high over-heads. Unfortunately for Dubai investors many of the properties there were developed for the second home market (apparently quite a few sun-starved British football players have bought second homes there), and tourism was also a big focus of the last few years.

Fortunately for Australian property investors probably few are exposed to Dubai’s property market, and the lesson of the last few days is that that is a good place to be! Meanwhile local news is more focused on the Liberal’s leadership turmoil than any economic news – so all is back to normal for the lucky country!