Iranians Mired In Dubai Property Slump

Source : The Business Times, December 18, 2008

Bursting of the emirate's real estate bubble spells financial ruin for thousands

(TEHERAN) Habib Mostofi is one of thousands of Iranians who believed that buying property in Dubai would be safer than doing so in Iran, which is isolated by the West over its disputed nuclear plans.

He's still standing: Businessman Reza Dabir-Alai cannot sell several Dubai apartments that he bought, but he cannot cancel the contracts either
But that was before the emirate's property bubble burst.

'I invested all my family savings in property in Dubai. I thought it was near Iran, politically safe and business- friendly,' the 43-year-old businessman told Reuters. 'How can I tell my family I was so wrong and lost the money?'

The economy of the United Arab Emirates, the world's fifth-largest oil exporter, has surged 50 per cent in real terms since 2004, but the tide has turned as slumping oil prices and a global financial meltdown put an end to Dubai's property boom.

In recent years, Iranians - as well as others from Iraq, Pakistan, Somalia, Sudan and Lebanon - have flocked to Dubai, the Gulf trading hub where construction cranes litter the skyline.

Many Western banks and export credit agencies have quit Iran, and Iranian executives face increasing difficulty opening letters of credit, vital for trade, with an Iranian address.

Some opened Dubai offices to avoid that problem, while others just saw Dubai's property boom as a surefire earner.

At the height of the real estate bonanza, mortgages were easy and property could be sold for profit even before construction was finished - a practice known as 'flipping'.

Reza Dabir-Alai, a businessman, 39, bought several apartments that together measured 1,541 square metres in Dubai.

'Substantial profits could be earned in a matter of days, sometimes even hours immediately after buying a property,' he said, adding that after signing a deal for one apartment, he was offered 2 per cent more as he left the real estate agent.

Then, the financial crisis began lapping on the beaches of Dubai's many man-made islands. Rows of apartment blocks and exclusive villas have lost their value, as banks have reined in lending, casting a pall over corporate finance and construction.

'I cannot sell these apartments . . . and I cannot cancel the contracts,' said Mr Dabir-Alai.

Shahnaz Mirsoufi, an Iranian real estate agent based in Dubai, said that prices of villas and apartments in Dubai, on average, had doubled since early January last year but now, some premier property prices have dropped by as much as 50 per cent. 'Even in the first quarter of the year, the price of villas and flats, many not yet built, rose by 43 per cent,' she said.

Analysts, in a Reuters survey this month, said that Dubai property prices would fall 28 per cent from a peak earlier this year.

Hamid Sardari, an Iranian businessman, said that he was 'penniless' and feared for his shipping company.

'My money that I need to run my business is stuck in Dubai property,' he said. 'I will be bankrupted soon.'

Now, some developers have put projects on hold after Dubai's real estate regulator urged developers to slow down, saying that worsening financial conditions were driving up defaults.

Many foreigners were also attracted by a former promise that owning a property would secure them long-term Dubai residency rights.

But Dubai's property regulator this year scrapped such a guarantee.

That spelt financial ruin for computer engineer Mohammad Reza Nouri: no visa, no job in Dubai and not enough salary from his Teheran work to pay off his UAE loan.

'My aim was to get a residence permit in Dubai. Now, I cannot get the permit and I cannot pay the apartment's monthly instalments,' he said after investing US$50,000 of his savings.

Concern about the speculation even prompted a public warning from Iran's ambassador to the United Arab Emirates last month. 'I call on Iranians to avoid buying properties in Dubai. For those who want to make profit or get a residence permit, none of those is possible,' Hamid Reza Asefi told state radio.

Selling is not always an option. Mina Vakili, a divorcee, said that she could not sell an 80 sq m apartment that she bought. 'I wanted to profit from my Dubai apartment to buy one in Teheran. But now, it is not clear when the project will even be finished.' - Reuters