After months of press releases and government promises that there will be no such thing as a bubble in Dubai, the big boys of Dubai are finally saying, “Beam me up Scotty, I think I’m in trouble.”

“Trouble,” would be the understatement of the year, and the developers are making it clear they are not one whit interested in the fortunes of the smaller investor. Despite the recent introduction of laws written to protect smaller investors, Dubai’s property developers are thinking up new ways of avoiding any responsibility and screwing every last penny possible from the situation as fast as the new laws are passed.

MiNC, developer of Prodigy 1 in Jumeirah Village South has put a new proposal to their current investors:

Pay more than the agreed price, or we will cancel the project and keep your deposit.

The wording was slightly different, but that is what it amounts to. According to MiNC, two banks have withdrawn funding and “the project is no longer financially viable. Costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project.”

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It is actions such as this that will finally deflate what is left of the Dubai bubble. A lot of confusion is surrounding Article 11 under Law 13, which guarantees investors - “In the case of canceling the contract, the developer may retain 30 per cent of the ‘contract’s value’, and the rule of (30-70 per cent of the money paid) shall be applied on amounts exceeding 30 per cent.”

Key words here are “contracts value,” not “monies paid,” as the Article originally stated. Arguments abound and opinions are divided amongst those who feel that Dubai no longer needs outside investors and the emphasis of government intervention should be in favor of protecting the developers, and others feeling (as we do) that the smaller investor is vital if Dubai wishes to be anything more than a “Disneyland in the desert.”

As things stand at the moment, if a small investor defaults (as is starting to happen on a large scale), the developer keeps 100% of the money in some cases, and developers are simply refusing to answer questions or deal with inquiries. A number of smaller investors are attempting to band together in an effort to at least recover the “70% of monies paid.” One such group can be contacted here:

investorslaw13@hotmail.com

Elsewhere, prices are falling dramatically, with distressed properties being offered at 40% discounts on Palm Jumeirah, which is still massively over-priced. If falls in the US and Spain are any indicator, some analysts are expecting Dubai’s prices to fall anything as much as 60% in the next few months.

Other property websites are now starting to report on Dubai’s bursting bubble, and here is a selection:

Reuters - Dubai real estate suffers as distressed sales rise
AOL Dubai Property boom halts as prices fall and jobs go

According to Mohannad Sweid, CEO of Depa, some of Dubai companies are in “denial” about the viability of projects in light of the global financial crisis.

We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they’re either not announcing it or they’re saying it’s going to be delayed. We cannot deny the effect [the crisis] has been having, we are a part of this world and I believe it’s just not right to say we haven’t seen any impact. What we have had in the GCC in the last three years is the difference between reality and non-reality. Our market research showed there will be 280 new hotels built over four years within the GCC. That was advertised all the time… If we look at the reality - how many hotels have been delivered - it’s hardly more than five or six hotels a year.

In terms of risk to his own firm, Sweid was confident that infrastructure projects would still go ahead.

In this region, a lot of infrastructure is not developed yet and these elements of infrastructure have to be developed - it’s not a choice,” he said, citing Dubai’s new metro system as an example. He added that Depa was still on track for growth for next year, but the “fears” were for 2010 and 2011.

The real question is not whether the Dubai bubble has finally burst, but more how far it will deflate. With property prices quoted as having risen somewhere in the region of 76% over the last year, a major correction is likely. Already prices have fallen 40% in most developments, and we feel it is going to deflate a lot faster than it blew up.

Although Lebanon witnessed an economic slowdown in 2007, real estate activity during the year has proved to be quite resilient to the said trend prevailing in the country.

The rise in real estate activity can be attributed to several reasons such as the increase in population, higher demand by expatriate Lebanese, the relatively low taxes in Lebanon, the improvement made in terms of property transfer operations, and the facilitation of foreign ownership.

According to the Directorate of Real Estate, the number of property transactions reached 154,158 in 2007, up by 21.4% relative to 2006. Nevertheless, although the first half of the year saw a good 7% growth, the cumulative yearly double digit rate in mainly coming from a 38% increase in the second half of 2007 in comparison with the same period in 2006.

This half-year rise, in turn, mainly stems from an 82% surge in the third quarter of 2007 relative to the same quarter of 2006 that witnessed a freeze in real estate operations during the severe Israeli war, and to a smaller extent, from the 14% year-on-year increase in the fourth quarter of 2007, noting that in the last quarter of 2006, the number of property transactions more or less resumed its pre-war level.

Property taxes’ receipts increased by a significant 32.2% during 2007 to LP 459.7 billion, but this is again the impact of the 95.3% growth reported in the second half of the year that compares to the odd second half of 2006, which was largely shaped by the summer 2006 war and following events, whereas the previous six months the receipts went down 16.4%. The effect of this second half also changed the trend in the value of property sales which was down by 12% in the first half only to become 33.7% higher when comparing full year 2007 to 2006 and reach LP 6,329,056 million. As for the average value of property transactions, it went up by 10.2% during 2007 to LP 41.1 million per transaction, driven by 55.2% year-on-year increase in the average value of property transactions during the last quarter of 2007, thereby reversing the trend of demand for less expensive real estate that has been consistent throughout the first nine months of 2007 and resulted in a year-on-year drop of 8.1% in the average value of transaction during the said period.

The majority of collected property taxes in 2007 were in Beirut with 42.2% of the total amount. It was followed by Baabda with 19.0%, the Metn area with 15.8%, the Keserwan area with 9.3%, the South with 5.4%, the North with 4.8%, and the Bekaa area with 3.0%