'In terms of mortgage finance, banks are looking at values coming down and they don't want to be stuck with an asset that's declining in value,' said Barmak Besharaty, Managing Director of Almas Capital.
'So lending will return once property values reach the median affordability level for the country.'
The finance expert was speaking on the panel for a Cityscape Connect meeting, which examined the challenges facing the real estate sector in Dubai.
Besharaty defined the median national affordability level as the bar at which 'middle income' families could get on the property ladder: 'When defining the median I'm saying that you have to take out the labourers, who are transient and the top end luxury group.'
'What is happening is good for Dubai but very, very painful. A lot of developers were offering luxury lifestyles that were way beyond what residents could afford, median income was nowhere near property averages. Luxury developers will see their projects turned into affordable units, not because of government initiatives, but because this is the law of economics.'
'We all knew that there was going to be a downturn in 2009/2010, the thing that took everyone by surprise is the speed with which it hit us, and it's had a very large and very real impact on the real estate sector,' said Stephen Ashford, senior director, development at Omniyat Properties.
'It's a now a very difficult market to do business in. Ultimately it's a good thing, and it is forcing people to rethink business models.'
'This is because the type of market that we had, which centred around off-plan sales, requires a large amount of debt. The crisis has resulted in the repatriation of capital. Off-plan was always going to be affected, but this has fundamentally changed the sector in the short term.'
'This is a market where everything is about cash flow. A developer can't complete if customers renege on cash flow. The key in this market, is there's no debt to be had, no financing available. The problem with Dubai is that the market is driven by sentiment.'
'In off-plan, when you sold 100 properties in one hour, that was seen as a success, but there was no consideration as to who was buying these properties and whether it was sustainable in terms of financing or not,' said Khalid Howladar, senior credit officer at Moody's – which recently placed a number of Dubai's quasi-government entities on a watchlist for possible downgrading, 'That is the paradigm shift that has to change.'
'Reaching the bottom has nothing to do with fundamentals at this point in time, it's about confidence. Markets have to be two-way, you need buyers as well as sellers. Some people are willing to buy but can't get financing as the banks are still hoarding their money.
'Long term sustainability is there but I am worried about the confidence angle because if it doesn't come back then you can get caught in a spiral. I feel that there will be a quicker rebound, but from a sharper downturn.'
Bullish long-term outlook
Other panellists also saw the long-term outlook for Dubai's property sector as positive, but warned that there would be further difficulties in the short-term, and that it would be very difficult to predict an end-date for the current upheaval.
'The effectiveness of global government bailouts of financial sectors will decide where markets end up,' said Ashford. 'No one knows when this will end, even world-class economists can't predict it. We are in a very difficult situation, all we can do is sit the next month out and see.'
'I'm bullish on long term prospects. Dubai will become a better place to live once rental costs and prices to buy adjust to levels where families can afford them. Short to medium term we will be part of the global environment,' agreed Besharaty.See also:Watch: Ryan Mahoney examines the state of Dubai's property sector (Part 1)Watch: Ryan Mahoney analyses the outlook for Dubai's property sector (Part 2)Post-slump Dubai rental yields to 'stabilise at 8%'