Burj Khalifa: what goes up can always come down in value
October 27th 2010 05:06
You can't go wrong buying property, if you're investing for the long term, which is why property - in the form of the family home - is the single largest investment the great majority of us make in our lives.
Property is safe because, basically, there is no property market in the world which has not risen steadily over time.
That "time", of course has to be a long time. Shorter-term, property is a market like any other, and subject to market influences and sentiment which can drive it up or down. But most of us don't need to worry about that - one mortgage is burden enough.
Buying property purely for investment, therefore, is best left to the professionals. They understand the market and the risks.
Most of the time, anyway.
One of the fundamental truths of investing in any market is to buy when that market is low and sell when it is high. And never has any property market, arguably, been as high as that in Dubai when they started forward-selling commercial and residential space in the Burj Dubai.
The Burj is the world's tallest building and Dubai - at least until the global financial crisis - was the world's hottest property market. Prices were on the rise and rise, but investors were queuing to buy apartments, condos and office space in every brilliant new architectural wonder opening there simply because there was no end to the boom in sight.
It was like a re-run of the internet and technology stock boom of the 1990s. The markets were pushing up technology stock prices so precipitously that Bill Gates' personal net worth rose about US$36 billion during the northern summer of 1998-99. Gates himself was moved to warn against buying internet stocks, repeating conventional wisdom that all bubble markets must burst.
Forget conventional wisdom, they yelled back at him. Forget the tulip craze of the 17th century. Forget the junk bond craziness of the 1980s. This bubble can't burst because the internet is new and unique. This market run can't fail because it is not convemtional. This bubble has barely begun.
The late 1990s currency crisis which began in Thailand put an end to all that.
The global financial crisis was still a nightmare yet to disturb anyone's dreams of profit when they started selling Burj Khalifa floor space off the plan, but it was a full-blown demonic reality by the time the Burj Khalifa opened in January 2010
That's when those who had bought property in it started trying to rent it out.
They haven't had a lot of luck. A Bloomberg report this week offered the following status report:
# About 825 of the tower’s 900 apartments remain unoccupied
# Rents for luxury apartments in Burj Khalifa have been slashed by up to 40 per cent; rents for other apartments by up to 50 per cent
# During the five years it took to build the Burj Khalifa, Dubai went from the world’s best-performing property market to the worst, with values crashing more than 50 per cent and nearly half of all planned real-estate projects being scrapped
Bloomberg finished its report by suggesting it could have offered more information, but the tower's developer, Emaar Properties, had ignored emailed questions.
So just remember the hoary old advice: buy when a market is depressed and sell when it's up. Which means, of course, that Burj Khalifa apartments look good value right now.
bloomberg.com
Some people will go a long way (up) for a pool party.
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