Credit Crisis <NOT> coming to Qatar

wow.. not too good news...

i will check it, thanks for info...

i'll pray they won't let another disaster to happen like in 80-s..

I am not sure what the current picture is but the house prices fell during June and July across Canada.

Google for 'Canada real estate market' and it should give tons of analyst opinions.

well.. i am really concerned...

but tell me RocknRoll, did prices really go down lately in T.O? What’s the situation on the real estate market ?

"Everything in this book may be wrong." Illusions: The Adventures of The Reluctant Messiah by Richard Bach

Do you mean un-developed land? I don't know. Even if there is, the risk is not reduced as the value decline will impact everything, built or un-built.

Banks are usually required by regulations to keep within a set ratio between loan and security. Perhaps this is not hte case in Qatar in which case, noe of above applies here.

Depending upon the customer's situation, the banks may accept addition of un-burdened property to the mortgage to increase the security rather then a cash payment. But this depends upon the customer and their net worth.

For general public and small investors with one house and not much left over, it's curtains.

Don't panic, we are not there yet and may not get there at all. Governments are taking steps to ward off such occurance. But it helps to know what is possible.

oh... so the banks call in the loans for the reason of lack of cash for their smooth operation? they just want to get cash from people whom they lended the mortgages to?? not for the reason of the risk of not getting their mortgages back from those people??

if it's so, it's NOT FAIR!! banks gives the loan for the certain time with the certain conditions. If the loanee doesn't violate these condition (i.e. keeps making the monthly installments as agreed), how bank can break its own Contract with the loanee, and call in the loan with no reason, or just because bank “needs cash now”?? It doesn’t sound right at all! The person who takes the loan relies on this money, and makes plan depends on it. How come bank just change its mind and ask for whole amount back all of a sudden??

"Everything in this book may be wrong." Illusions: The Adventures of The Reluctant Messiah by Richard Bach

"They know somebody will rent them no matter how expensive it is..."

What happens if there is NO ONE to rent the place and the Government puts a cap on how much rent it will pay for an employee?

The Salaries may be great and tax free but if large portions of it is going to the landlord, people will leave and then there will be no one to rent the property and everything else follows through to what has been said before.

Please understand that nobody WANTS this to happen but such is life my friend. We the small investors have to be really smart to avoid being burned cause we burn easily and are in the front line.

Someone once said that if you owe the bank $100 it's your problem. But if you owe the bank $100 million, it's the Banks problem :)

No. I was talking about rents. Not property prices yet.

But I suspect that if the cash infusion by the government fails to stem the rot, the banks will call in the loans or collapse.

THEN the property prices will go down.

...is that the owners of the flats/villas/houses here in Qatar will try anything to get their loan paid...even if they have to increase the rent.

They know somebody will rent them no matter how expensive it is...

I also sense that the idea of demolishing old flats are conspiringly a setup to get the renters to not utilize it anymore and hence use the new-but-expensive villa/flat/house...

"Everything in this book may be wrong." Illusions: The Adventures of The Reluctant Messiah by Richard Bach

you mean, the prices in Toronto went down dramatically just recently????

and banks started calling the owners?? is that what you are saying??

but i think it's nonsense. The crisis will be over. The prices will go up again. People who got a fixed interest on mortgage keep paying off their loans. Why the bank would demand money from them, knowing that the loanee probably cannot pay off whole amount now(as cannot sell the house for the right price), and making the loanee file the bankruptcy (in this case the bank gets NOTHING or a very little part of the loan!), instead of waiting, getting their monthly installments, and eventually getting all the mortgage back with the tons of interest in the long term??? i am confused here...

Dude, even a bedouin knows that he has to pay the bank x thousand riyals per month and gets y thousand ryals from his renters. If the y becomes less then x, he is in trouble. No? :)

People may not know the terminology but they sure do know the concepts :)

It's hard for them to explain such details about fall of occupancy rates and other thingamajie related...they never even cared about it...

"Everything in this book may be wrong." Illusions: The Adventures of The Reluctant Messiah by Richard Bach

More on the second situationn;

The cash injections by US, UK and lately Qatar governemnt are designed to ward off the situation where Banks are forced to call in the loans or ask the loanees to regularise it by paying the difference between the property value and the loan.

However, this is a short term cushion. In mid to long terms, the banks will call in the loans and the property market will be re-evaluated.

Once this happens, other banks will follow suite.

Once it starts, nobody knows where the property value devaluation will stop in North America. This is what the government are trying to ward off by cash infusion.

As for Qatar, the economy is not that well documented. So any prediction is useless. Qatar Government is also cash rich from Gas Sales. So they may just underwrite the whole thing and support the market. Who knows.

The Banks will provide a loan only if the security provided is worth more then the loan itself. This is a basic law.

As such, if property values fall, banks will call in the loans. Yes, it has happened in Canada about 20 years ago and in other places too.

The current credit crisis is exactly this. The banks have loaned out money against security, property, which is not worth as much as the loan. This is what the sub-prime crisis is all about.

People are trying to sell their properties and there are no buyers. Therefore, strictly speaking, the value of the property has gone down lower then the loan. Since there is no liquidity in the market, the prices are artificially holding because there is no transaction.

In US, banks are not calling in the difference yet. But they have a liquidity crunch in return. If depositors lose faith in banks knowing that they have questionable loans on the books, the banks will not be able to come up with cash and collapse.

The rot has gone in to such an extent that the Banks are not loanning money to each other either this is the simple explanation of LIBOR crisis and the credit freeze.

Actually there is something called rent-going-down.

If occupancy rates fall and the landlord is leveraged in mortgages, the first line of defence is to reduce the rents.

We have seen exactly this happening in Toronto where there was a shortage of apartments and the rents were spiralling up.

Suddenly interest rates stared going down and the building boom started. People found that they can own a house within the amount of rent that they pay.

End game for the landlords. The rents have been falling since then.

wow... the second situation is really scaring!!

why? is it not enough just to keep making your monthly installments?? we all know that the property values going up and down, but in a long term they go up anyway.. why bank would put the loanee in such situation?? i understand if the loanee stop making payments, then bank may be worried... but in case of regular installments why bank would ask for extra cash?? do they really practice it??? do they really re-caculate a house value once in a while? does it happen pretty often??

...so bank can ask me all of a sudden to pay let's say another $50,000-80,000 or whatever amount, at once??

you asked since the mortgages are fixed, why do people default.

There are two scenarios;

1. In North America, during recent years, falling interest rates have become a rule rather then exeption. As such, people chose to sign floating rate mortgages which tracks the Prime rate and loads it. For example, people signed floating mortgaes at Prime + 0.25% with understanding that their interest rate will change as prime changes.

If the interest rates suddenly skyrocket, and reaches soemthing called a triggering rate, their payment will go up and they may not be able to make the monthly payments. The triggering rate is the interest rate at which their payment does not cover the interest charged on their loan.

2. The second situation is where the loan is on fixed percentage and the property value falls such that loan becomes larger than the value. In these cases, Banks call in the loan or ask the loanee to deposit X amount of dollars to bring the loan value back to being lower then the value of security. Surprising some people do not have that much cash floating around :) and declare bankruptcy.

Both of these scenarios result in distress sale of property and overall reduction in property values.

sure, MD.. and that's what i always say.. "demand-supply" rules, Free market are good.. but.. Free Market and Jungle are not the same things! every free market needs the right laws and regulations which would be beneficial for both supplier and consumer. And sure qatar doesn’t have these kind of regulations in its real estate market. Let’s hope doesn’t have it YET!

Expats can afford those rens if the rent was not included in the Employment contracts.

I am aware of some contracts where the rental property provided to the employee costs more then the salary. And this is for some Western Expats from North america!!

I agree with Aviduser here. The rental market is overblown and has to come down unless the government of Qatar wants to find itself renting all the properties directly or indirectly.

This will impact real estate as well. typically, in North America,the real estate is priced around 70-80 times of annual rental value.

If the rents go down, so does the property value.

That's all I can say. It applies to anywhere in the world.

"Everything in this book may be wrong." Illusions: The Adventures of The Reluctant Messiah by Richard Bach

So, in other words, QS, the government failed. There is no housing policy. There is no thourough planning. It's just a violent scene out there. If you mean that, I agree.

i know, it might be endless...

and i wish the prices will go down.. but go back 2 years and check all these threads about the rent!

they use to say exactly the same things... arguing, debating.. but..since then the prices are just going up and up.. which is very sad..

i wish Alexa, MD and you Abu are right!

let us hope..

right, MD, and that's what i am saying.. Alexa.. they are not affordable, because there is shortage of them. Let's assume, tomorrow every single bachelor and every single family who lives in Doha, will afford to pay the offered prices...let's assume, everyone will have at least 10,000 for accommodation. Will all of them able to move into their own place? NO! why? Because it is NOT enough separate places for each family/bachelor.

For me it is simple, QS. We have a familiy income of 25.000 QR and we do not intend to spend more than 20 % on housing. Therefore we share a villa with another family. I am not looking for something I like. I take what fits in my budget and get used to it. For the last 12 years we lived in houses with four bedrooms and gardens. When the rents increased by 400 % we moved out and said: f*ck yourself.

Right, MD!!!.. but those who rent the Company this camp, will keep in mind that the room will be given not to 10 persons, but to 12! And they will increase the rent! And company still will pay, because they will accommodate 2 more people for just a bit higher price! That’s what happens with the villas!!! But will it solve the problem? No! Because abyway bthere won’t be enough extra places for these 2 extra labours, as well as for these two-three-four extra families who will have to share the villa instead of getting their own place!

But again, it’s not about these 180 labours heading to industrial area. It's rather about “low-to-middle-class” specialists with the salary of 6000- 15,000.

Do you think, are there enough places today in Doha for everyone who doesn't want to share? will it be enough places for every single person tomorrow? no! that's where the prices from.

Villa is shared for 4-5-6 families not because these families want to live under the same roof, but just because there is no separate place for each of those families. and then the prices are calculated simple: each family can afford to pay 4000-5000, so shared villa for 5-6 families will cost 25,000. If one of these 2-3 (out of 200) can afford a whole villa for 25,000, fine, he takes it. If not, villa is rented out by "portions"... simple. Why? Because there is not enough of individual villas of flats for each family/bachelor. And it not will be enough in the near future.

sorry.. that's what happens when you are hanging on three different forums at the same time...:)

i understand that, MD..i mean definitely it’s clear, when the bank's funds are not sufficient for operating smoothly and there is nowhere to lend cash anymore, the bank goes bankrupt. I just was thinking about these ppl who are suddenly unable to pay off their mortgages because of crisis and because the value of their houses went down. But as you said, the actual reason is losing the job due to crisis, not the crisis itself....

One might lose the job at any time, but at least he/she is on the safe side if the value of his/her house is high enough to cover the outstanding balance of mortgage, or in other words, the equity is positive… but when one loses the job and at the same time the property prices went down, or equity is negative, it’s really hard situation..

IF you don't mind, MD :)

thanks

QS, when they bring 180 laborers to the labor camps and there are no 180 sleeping places they will cramm some more sleeping places in the same room and instead of ten people there will be twelve people in one room. No problem.

I still don't get it SunQatari, why you keep calling me MG??

She wants a "discussion", Abu.

oh, it doesn't matter where they go... there are no 180 new places per day in industrial area either..

it affects a whole market...

These are not 200 high earning employees per day, QS. 180 of them will be transported to a camp in the Industrial Area.

i hear it for at least two years by now...

..about 200 new employees arrive to Doha EVERY DAY to work and to live here. Do they build EVERY DAY 200 new places to accommodate these people??

i doubt it...

Luckily the Government has not let the real estate market go crazy by allowing private developers.

BUT

I would argue that the influx of ex-pats and highly paid ones at that coming here for the asian games was one factor that fuelled the rent inflation we have seen in the last 3 years.

Now I am not say that Qatar is going to crash, I am saying as I have said before that fundamentals are not supporting prices here. The paragraph above about the number of ex-pats needed to fill the apartments applies here.

Right now Qatar Living is doing a survey about nationalities, I would like to see a survey about salaries. To see if my thoughts are borne out by facts.

... and then, QS, the bank which lost some money lends money from another bank to finance some transactions, and the other bank lends some money from another bank to finance some of its businesses, and .... then when one of the banks needs real cash it isn't there and the bank goes bancrupt. But it still owes another bank, which inturn will not receive its credits and goes bancrupt when another bank asks for the return payment of a credit and ...

We call this a "domino" effect.

The only question remaining is, how much are banks from the Gulf involved in international banks? That will tell us if they will be affected or not. The 6 billion vaccination of the Qatari Government does not look good. Why would they consider to do that, if everything was fine??

oh, MD.. it happens in case of losing job during the crisis.. i see..

PRINTED IN 2005 Most relevant parts with regards to Qatar I have bolded, these were not bold in the original article.

Khaleej Times Online >> News >> BUSINESS

Dubai property: Scenario in 2007

Gulf money by Matein Khalid

29 May 2005

SIR Isaac Newton had his eureka moment under an apple tree and Archimedes in his bathtub. My own eureka moment, the one insight that changes everything, occurred at a cosmopolitan Yuppy party at a friend's lovely pad in the Dubai Marina.

The Marina reminded me of all the other yacht speckled communities I knew in my past pre-Dubai incarnation, in Florida, the San Fran Bay Area, the Gold Coast on the Long Island Sound, the Bay of Anges in Nice. However, as is inevitable in any social encounter in the Xanadu of yuppiedom and given my existential fate as the KT media guru, seer, oracle and crystal ball gazer of all things financial in the UAE, a friend's wife asked me to forecast the property scenario in Dubai two years from now.

Before I could whisper "Beam me up Scottie" to my brokers in cyberspace, retreat to the safe familiar digital netherworld of Nasdaq and British pound futures trading (was not the 1.90 cable short a beauty?), I was compelled to respond. So here goes. My take on Dubai property in 2007.

I noticed that apartments in the Marina are priced at an implicit land cost of 1,000 dirhams (AED) a square foot. Ouch! No wonder even 2 bedroom cubbyholes without a view go for AED 1.6 million. However, real estate value, like beauty is in the eyes of the beholder or at least his real estate agent. Voila! I noticed (other than the fact that the Marina seems a ghost town, with barely 20 per cent occupancy), the greatest unexploited arbitrage in Dubai real estate. Villas in the Meadows, the fabled Street of Dreams, were available at 2.2 million AED. This would be an 8000 square foot plot and 4000 sq ft built area.

Assume construction cost is 300 Dirhams per square foot. So, the villa cost 1.2 million AED to build and land cost is therefore a rock bottom 125 per square foot. Hello? Which real estate buyer in his right mind would buy an apartment in the Dubai Marina for land valued at 1,000 AED a square foot when he can own a landed property a stone's throw away with land cost at 125 Dirhams? The Meadows is next to DIC, DMC, Knowledge Village. It is a community, not the boonies. Differences in construction costs? I was born at night but not last night.

Economies of scale make construction costs lower in towers. The view? Please. My intelligence is modest enough but kindly do not insult it. Yet this incredible value gap exists for the benefit of the entire planet. Have the laws of economics, let alone common sense really been repealed at the Dubai Marina?

Obviously, either land in the Meadows villas is being given away for nothing or the apartments are wildly overpriced. All over the world, from Bombay's Marine Drive to Hong Kong to San Francisco to Clifton, land cost is three or four times more than apartments in the same beachfront/seafront area. Yet Meadows villa land costs are one-eighth those in Marina apartment? Either the sellers of the villa gave them away as charity or the buyers of the apartments are eligible for Dunce of the Decade awards? You really do not need to be George Soros to figure out the answer to the above dilemma.

Let us fast forward to 2007-2008. Published figures suggest the Big Five developers will deliver 150,000 units. Since every loaded Joe Schmoe from Bombay to Lahore to Meena Bazaar fancies himself a developer, another 30,000 units can be added. There are about 80 private developers desperate to sell their projects in Dubai. This means the supply overhang is at least 180,000 new units even assuming no projects are announced in the next two years. So 200,000 new units in 2007-8 is a very conservative forecast for new supply.

Let us look at Dubai Municipality figures on demographics and rentals. The city's population is 1.3 million. There are existing 150,000 rental units in Dubai. Take out 300,000 labourers/housemaids who will never rent or own real estate here, 100,000 commuters from Sharjah and Ajman, 100,000 eight bachelors in an apartment (clerical and super kanjoos guys) and 300,000 UAE nationals who own their own homes, you are left with 500,000 people looking for 150,000 rental units. The international family average per rental unit is 3.5. So, because of an influx of expats, a small supply-demand squeeze caused rents to spiral up by 70 to 100 per cent in two years. But in 2007-2008, a phenomenal 200,000 new units will hit the market. This means that we need about 800,000 new expats who are not labourers, housemaids, tailors, minimum wage bachelors or the Sharjah/Ajman commuters to fill this unit. In essence, a doubling of the professional high income salaried population of Dubai in the next two years. Realistic? Not at all.

Lo and behold, the brutal economics of oversupply, the kiss of death for property bubbles all over the world, now begin to hit the market. There will be a collapse of rental yields in villas and apartments in the free zone. Think about it. Some poor "investor" has bought a 2 million villa. His cost of carry (bank loan) and maintenance means he has to make at least 11 per cent per annum to just break even. Yet this is impossible with the emerging economics of the rental market. What will the poor soul do? What choice does he have but to sell whenever he can?

It is tragic that some developers have manipulated demand and misled the market with fake "sold out" projects, phony sales figures and wildly inflating prices by keeping units in inventory. Seriously, I learnt the truth of the old adage that a fool and his money are soon parted when I went to a glitzy "privileged sale event" and found the place full of real estate brokers (2500 of this specie in Dubai and most make used car salesmen in South Texas the epitome of marketing ethics and consumer disclosure). This was not real estate marketing. It was a con game and, sadly, greed blinds human beings to jettison all ethics overboard. I just shudder to think about the class action lawsuits for misrepresentation when the bubble pops. A Big Six accounting firm in Dubai whose name is being used by a private developer's ad for its scheme should definitely seek legal advice to protect its franchise.

Apart from the ethics of developers, it is their finances that also worry me. How much due diligence do local banks conduct when sanctioning developer loans? What kind of safeguards exist to prevent buyer deposits from not being used to pyramid additional speculative schemes? Are buyers funds segregated in escrow accounts as is standard practice in international real estate finance? Do credit bureaus exist to enable banks to analyse developer risk? Of course not. Every bank CEO in town knows this. This is a source of systematic risk to banks if private developer defaults escalate in 2007, as I expect they will.

The cost of money is also moving higher. When China revalues the Yuan, long-term dollar interest and mortgage rates will soar. The market is soft and getting softer every week. Thousands of leveraged speculators are trapped owning apartments (the epicentre of the bubble) they cannot sell. In fact, properties marketed as "freehold" now can only be sold once from booking to possession, wiping out what little liquidity existed in Dubai real estate in the first place. Some banks have extended billions in loans to foreigners where possession claims have never been tested in UAE courts.

The process has begun and any analyst who is not brain dead has to see that the daisy chain of leverage is fatal anywhere where end demand is dwarfed by supply and distress sellers. The credit risk management protocols of some property finance banks make me gasp with horror. Imagine monthly instalments (and maintenance charges) as high as 15,000 dirhams for a poor soul earning 20000 dirhams. Unlike impaired personal loans, banks cannot just "create" a phony new "current" mortgage to keep the fiction of IAS compliance alive.

I came to Dubai as a child and returned here from New York as an adult. My wife and twins were born here. My best friends in life, many UAE nationals live in Dubai. The city gave me fame, money and most precious of all, deep friendship and brotherhood. It pains me to see greed crazed mercenaries jet into Dubai and manipulate its property markets, trigger cycles of deceit and speculation, build leveraged house of cards in the banking system. The people of Dubai deserve better. The root for the word credit is the Latin verb credere. Belief. Without belief, there is no credit. Please let us not squander our credere for the sake of a quick killing.

Credit crisis not coming to Qatar, Mmmmm I would agree only this point, if you are a Qatari the credit crisis is not going to affect you. The Emir has already stepped in and bailed out the banks. The local populace is going to be ok. As for us, we if you are into Oil and Gas no problem. Real Estate is another thing entirely.

What if you lose your job and are unable top pay the mortgage? The bank will take the house and ... sell it at the lower price. They will lose some of the credit they gave you. That's why it's the start of a "credit crunch".

thanks MD.. also can someone explain to me why all these people are selling their houses in USA?

I miss something here.

The interest on mortgage is usually fixed for few years. Mine one is fixed for 5 years, for example. So my mortgage payments don’t go neither up nor down during these years, right? Ok, I understand the value of my house might go down for a while during the crisis, but again, it does not affect my mortgage installments. So why these people face this huge issue and left with no other choice, except of selling their houses?

I don't know what will happen to Canada, QS. These pictures show a man from the Emirates watching the stock market. But since Qatar tends to imitate the U.A.E. I thought this might be the forecast for Qatar.

thank you Sir.. it's so kind of you... :)

but.. does it apply to Canada as well? is this guy worried sooo much about that part of the world???

impressive!

Forecast ??

… one fellow is an investments specialists in USA/central america. He assures that I can get about 16-18% interest on the investments in some bank in Hawaii... should i trust him?... or it's better to buy a property there, as prices fell down dramatically?

and what Toronto Star says about Toronto itself as well as about Canada in generaL/ what is the situation there?? what is the forecast?

but never forget one thing, RocknRoll: it's all a big gamble!

The property prices in Middle East will FALL. While liquidity is not going to be a problem, credit availability is another story.

Banks are being ultra-conservative right now and this will drive the interest rates higher putting pressure on an already oversupplied market.

Get rid of that apartment and stash your coin in US Dollar accounts in Qatar or Abu-Dahabi (not Dubai).

I wish I could buddy :)

"Prophet" RocknRoll, use your knowledge and make billions of Dollars. Good luck!