FT: Dubai property on red alert

Dubai is the most exposed of the local economies because its local real estate market is supported by foreign investment and because, as an emirate, it has little in the way of natural resources. A home-grown credit squeeze caused by excess lending and insufficient deposit taking has added to the disquiet.

Credit default spreads on Dubai debt, especially real estate linked borrowing, have ballooned as institutions bet that the pace of growth in the property market will not be maintained.

“The stock markets are a barometer of the real estate market - it’s telling you investors are very concerned right now.”

Well, first look at the golden goose that was driving the market - crude oil prices. They are now down 40% from the peak:

Let’s say oil settles down ~ $80 over the next few months. I think that’ll prick the ME/GCC/Dubai real estate & infrastructure bubble, given the huge amount of supply coming online - who’s going to occupy all that RE? Where do the cash flows come from? US/UK financial services companies? I don’t think so.

Let’s see if the skyscraper indicator works this time: Skyscraper indicator, LIBOR signals, Deficits & rupee

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