Thursday, November 6, 2008

Brazil Boom and an End to the Emirates?

A very quick post here tonight folks! It would appear some of our suspicions here at the Investment Property Rumour Mill are starting to gain some momentum after a conversation last night with some good friends in the industry, and also a few phone calls that has bought a couple of things to light.

We received a call earlier from someone working at one of the largest developers in the Emirate state (and beyond) claiming mass lay offs of staff were underway! We won't name the company specifically at this point, but it really is rocket science to figure out who. (The developer in question is known for its culinary expertise amongst other things, we have written about them in previous posts)

Infamous for starting, cancelling, restarting, doing the hokey-cokey and no end of other things besides, the rumours from within from 3 separate sources so far would suggest that mass downsizing is going on, culling of staff is at rate of knots only seen at old peoples homes when the reaper is in town. Rest assured, the moment we have independent confirmation of this from somewhere, we will post it for all to see.

The conversation with old friends last night threw up a couple of points which make a great deal of sense, as well as confirm what could be the end of a very short era for the Emirates as a whole.
A bit dis-jointed as it's going to look here, we will try to convey the point as best we can.
The discussion itself was about Dubai and the Emirates in general, my friends had been in conversation with some very prominent banker types in the middle east recently. The bankers when asked where the future of property was and was not for the foreseeable future.

On the positive side, Brazil came up. Now we know that a lot of peoples eyes are going to roll at that one, and cries of "that old chestnut" can already be heard. However, consider this.
Brazil is somewhat larger than just Natal and Fortaleza. (The only places that most of the west has heard of.)

Brazil has long been a producer and user of Ethanol, importing little oil of any kind. In the past 18 months it has discovered one of the largest oil fields and one of the largest gas fields ever recorded. This puts them in a position to export heavily and given the price of oil and the lack of it, the last man with a pot of oil will be a wealthy one!

Brazil has an enormous populous, infrastructure although crude in places, is nevertheless in place and scalable.

Brazil has now made 100% mortgages available to nationals. Granted they are not for high amounts, but the increase in commerce internally, and rapid expansion needed soon internationally for export and tourism, the country finds itself with a very large and expanding middle class with money.

On the negative side of where the future of investment property lay, Dubai and the Emirates was the response.

Why? Several reasons.

Infrastructure. Understand that the Middle East is still classed for the most part as a desert. Sand gets everywhere, nothing lives there primarily because it can't survive. Putting a bunch of shiny revolving buildings on it doesn't make it a great place to live, nor does it ensure the future of entire country.

We could put the office cat in a spacesuit. It does not however mean that the cat can firstly fly a rocket, nor does it mean that he can survive in space. Regardless of how much money we throw at him.

With all of the engineering skills and advancement in the world, subsidence happens. You build on sand, you will get some sinkage. Fact.

Attitude and/or ignorance. You only need to read the statements made to the press that we reported on from one developer saying there was no recession and prices would never fall.

Like it or not, and the Rumour Mill will go on record here, Property prices in the Emirates are going to drop. Hard and fast.

We believe by as much as 60% in the next 12 months or less. Sound like a wild prediction? maybe, but remember, we don't publish anything we haven't researched well, cannot prove, haven't heard on good authority or don't actually know.

If you have invested in the Emirates, stay for the long haul, it should recover. If you are in for the get rich quick, you've done your money. Expect to here the phrase "Enchala" (Arabic for "God Willing") when it comes to expected completion times, rental projections being met, and re-sale opportunities.


Shiny pictures of yet another Costa del Sol behemoth agent closing some of its offices and downsizing.

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New services designed to help the investment property owner as opposed to relieve them of all their money.

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