Collapsing Real Estate

The above came from my more technical blog on NaviMap (http://navimap.blogspot.com/2006/05/dubai-real-estate-bubble.html)

I visited Dubai in May '06. Upon returning to Singapore I drew the above NaviMap. So much has changed in two years.

Even as the prices of high end property is nose diving, the rental market remains relatively resilient. We paid 190K AED in in a single cheque for a year rental. Yes, for the uninitiated you are reading it right - One year's rental paid in advance. Stupid market. Last time, I checked Dubizzle, apartments like ours are still going for between 200 to 210K AED. This is a little better than when some landlords were asking for 220K AED and occasionally even 230K AED a few weeks earlier. The day of reckoning of the rental sector could be coming.

The market here is quite opaque, otherwise I feel prices would have responded faster. I wonder if they have not set themselves up for a fall over the cliff as a result. And as this happen to real estate, it should also apply to cars too, and an eminently depreciating asset to boot. We have decided to stay with pricey car rental (3.5K/month) for now.

There will be collateral damage of course - Lots of people will be laid off. We don't know if we will eventually join their swelling ranks, but I am sure except God nobody knows. So as confidence evaporates given that the crazy and greedy behavior of the past few years get exposed, commerce is braking towards a grinding halt. Once locked, the grease of liquidity has not been sufficient to remove the friction. It is because the road ahead on the old paradigm isn't tenable any more. As and when the path is secure again, governments and central bankers will discover there is too much liquidity. Some worry that it might take a war to make this happen. They pointed out that despite FDR valiant effort, he couldn't get America out of its economic malaise. It took World War II to do it. I don't know, this is too difficult for me to figure out. I just hope we are not entering a dark age. I haven't met anyone who can point the way to a new dawn yet but that does not mean there isn't one. My grand father generation will tell you that they felt the world ended when the Japs took Singapore. They could not be more wrong.

Conclusion: The future is beyond us to fathom, but let's have faith. If this is not good enough for you, go and read Taleb's, "The Black Swan" and get a good dose of intellectual humility.