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How does Dubai’s Debt Impact Calgary Real Estate?

Posted by Joe Samson on Friday, November 27th, 2009 at 3:48pm.

Here we go again! Better hang on to what you’ve got because another financial correction of our not quite yet recovered economy is coming. Is it?


For many years during the real estate boom, Dubai seemed as a paradise with an indoor ski arena in the middle of the desert and skyscrapers reaching above sand storms or magical islands erupting from the middle of the ocean with dream like real estate on them.


Now that the storm started to settle a little bit, the bills are coming in and it’s creating some deer in the headlight feeling form many investors because it’s time to pay.


Right now there are more questions than answers at this point. But here is a snapshot of what the big fuss is all about. Dubai currently has an outstanding debt of 80 billion dollars of which 59 billon dollars is directly resulting from the major real estate expansions that they have been over building and bragging about to the west to prove to them that they can build bigger and better real estate…


Dubai’s debt problems started to snowball just like the rest of the globe’s economy took a turn about a year ago. Their real estate market had also gone through a major correction the last couple of years creating major financial concerns from the imploding real estate prices. The sad thing for Dubai’s economy is that most of their growth was a result of foreign investments simply based on pure speculations vs. fundamentals.


Now what causing this panic reaction on the markets is the fact that Dubai had some of these loans worth billions of dollars becoming due in the next couple of weeks and they simply said that they are not in the position to pay it at this moment and are asking their creditors for an extension on their payments dead line until sometime in the future.


The great news for Canada is that there are no Canadian institutions involved with Dubai’s investments that are at topic here. Primarily some European and Asian banks are the ones that are running after their investment money right now. What the global financial market is really concerned here is the interconnectedness between the European/Asian banks and the rest of the word. We don’t have to travel back in time to far to remember the sub-prime era in the US – even though the real estate was a localized problem with mainly local banks, the rest of the word suffered just as much as the US banks because loans or investments are being sold amongst banks on a daily basis. Meaning that if a particular bank provides a mortgage to a customer that same bank may not be the sole owner of that mortgage a few weeks or months down the road.


So what is this have to do with Calgary’s real estate market? Technically it shouldn’t have a direct impact unless the rest of the markets begin to tumble and creating panic amongst investors who will decide to sit on their investment eggs for another few more months. Don’t forget, real estate is something that you can drive by everyday to check on and you cannot liquidate it as you would sell a piece of stock on the Internet. Houses don’t evaporate over night just as stock portfolio may due to a panic attack on the market. If you are thinking long term with real estate you shouldn’t be too concerned with these little blips in the market.


The whole confidence factor might have got ahead of itself a little bit too fast and it would be a normal cyclical reaction of the market to go through a minor correction in the near future just to remind investors that we are not fully recovered yet.


Calgary, AB Real Estate Blog


I am a licensed member of the Real Estate Council of Alberta since 2005 - proudly representing CIR REALTY, Calgary’s largest real estate brokerage. I enjoy keeping my readers up to date with real estate related information that they can easily understand and use for their own benefit. I welcome feedbacks and comments equally from first-time visitors to my blog, past clients and also from my fellow REALTOR® colleagues. Thanks for stopping by!

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