the debt problems in dubai may affect the us market
News Posted On: 30 November 2009
Dubai World's portfolio includes high profile US properties. Analysts are now pondering whether there could be a knock-on effect in the wider real estate market. The Dow Jones U.S. Real Estate Index fell 2.9 percent on Friday, casting immediate doubt on the recovery in that country's real estate market.
"Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower," wrote Richard Bove, banking analyst for Florida's Rochdale Securities .
"It [the Dubai World fiasco] has the potential to spill over into the broader perception of real estate development and real estate as being a very risky area for exposure," said Sam Chandan, chief economist at Real Estate Econometrics LLC in New York.
It is true that Dubai World's investments in the US are extensive. However Professor Brian (Tony) Ciochetti from the MIT Center for Real Estate thinks it is too soon to say whether the Dubai effect will prove contagious..
"It is hard to focus on any one particular participant and then generalize about the whole market," he said. "It illustrates that very few places and participants in the commercial real estate market are totally exempt from the global economic crisis."
Contrary to many dire predictions - judging by articles and blogs that appeared in profusion over the weekend - markets today are relatively steady, with DOW futures barely changed at noon GMT. It seems a recent announcement by the United Arab Emirates that they will provide emergency funding to banks hit by risk of default has calmed market jitters. Instead of Abu Dhabi bailing out Dubai World directly the UAE has chosen to support the counter parties to its debt.
Whether this will be enough to prevent another economic meltdown remains to be seen. While the picture clarifies markets could remain volatile. By next year however we could see markets once again climbing a 'wall of worry' – especially if a dollar rally proves elusive.
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