Dubai Property Prices to Keep Falling - Whether Banks Lend or Not

A Middle East mortgage broker has said that UAE property prices, especially in Dubai will decline a lot further unless banks restart lending.

"If financing and liquidity comes in, that will soften the price correction and property prices won't continue to drop like a stone," said Damian Hitchen, the managing director of Gulf Lenders Network, a master broker that connects most of the country's 28 mortgage lenders with independent brokers."

This applied particularly to Dubai, where prices have declined the most, Mr Hitchen said:

"The banks' overall portfolio exposure is getting worse every day... and the banks are going to have a real problem. By not lending, they are increasing the number of defaults and worsening their situation."

I agree that prices will fall further in Dubai if banks don't restart lending, but I fail to see how lending will stop the decline ether. But firstly I must pick a hole in the logic of Mr Hitchen's statements:

He says: "By not lending, they [the banks] are increasing the number of defaults and worsening their situation."

So, what is he suggesting, the banks should issue loans to people to be used to repay loans? Maybe he means lending to people so they can buy properties from people who are unable to pay their existing mortgages and loans, but with the situation that caused them to fall into defaulting territory unchanged, you can't blame the banks for being cautious.

So he must mean lending so construction companies and developers can stay in business, so less people lose their jobs and therefore default on their loans. But with the Dubai property market in the state it's in, who's to say the properties will sell, thus the banks would be continuing to give out loans that the companies may never be able to pay back.

The Dubai property market is in a very bad way. The price drops and credit freeze caused many developments to be cancelled and postponed. Now, who wants to buy a property with views of prestigious building sites?

With properties not selling and developments not being finished people who own property there are in a massive rush to sell. The market is plagued with over-supply of properties that no one wants to buy, so lack of finance is far from being Dubai's main problem.

The other thing I can't help wondering is: now that people have seen how quickly the prestige can come tumbling down in a place built solely for foreigners and solely for the wow factor, will they ever be so quick to invest in Dubai?