Those who have made a killing on bitcoin this year may be looking for somewhere to deploy their cash winnings. At the time of writing in mid-September, the cryptocurrency was up more than 300 per cent against the dollar since the start of 2017. I would be loath to speculate where it will be by the time you read these words, given its habit of moving 5 per cent or more in a day. For those looking for somewhere less volatile to park their cash, a British underwear tycoon is offering a solution. Michelle Mone, known for her Ultimo bra empire, has apartments in Dubai for sale in the cryptocurrency. “Don’t miss out on the chance to realise your bitcoin gains with a good quality, appreciating asset,” urges the website for the project, Aston Plaza & Residences. The scheme uses the payment processor BitPay to spare bitcoin buyers the inconvenience of converting their digital currency into a regular government-backed currency such as dollars. This helps buyers because the bitcoin exchange market is illiquid and volatile, so such conversions must be carried out gradually over time and might still result in a very different dollar sum to the one the owner of the cash expected. In BitPay’s system, the payment processor, rather than the buyer or seller, bears the conversion risk (the prices of the apartments are fixed in dollars, but purchasers can secure a discount by paying the bitcoin equivalent at the time). There is a certain irony in the idea of investors, if you can call them that, who have made large sums on such a capricious market rushing to move their digital cash into something as concrete as property. But in that respect, Dubai’s property market is hardly a paragon.
A local consultancy, Phidar Advisory, found in September that sales volumes of completed Dubai apartments were at a six-year low, while vacancy rates were rising and prices falling. Prices per square foot for premium apartments declined 28 per cent in the three years to the first quarter of 2017, Phidar data show. Sales volumes for off-plan new apartments, like Mone’s, are holding up more strongly, but only because of a financial mechanism put in place by many developers. With payment of a minimal deposit, they allow homebuyers to take out “post-handover payment plans” in which they may not finish paying for their properties until years after taking possession. This is creating a “shadow financing market” away from the formal mortgage market, notes Jesse Downs, managing director at Phidar.
Those payment plans became necessary because Dubai, like many other global cities, built large numbers of luxury apartments, rather than affordable housing for those who actually power its economy. Developers then had to find ways to persuade people to buy them all. Post-handover payment plans will enable yet more of this, Downs points out, by “artificially boosting demand”. She concludes that the residential market is 15-20 per cent overvalued and “the fundamentals indicate another phase of correction is required”. Dubai’s previous big correction was not pretty. Prices dropped by half in a period of months in 2008-09 and the emirate was left studded with incomplete construction projects. At the same time, the stock market crashed and expats abandoned their luxury cars at the airport as they fled their debts. The property market has matured since then, with measures brought in such as escrow accounts to prevent developers using deposits from one building project to fund another. But buyers still have less protection than those in cities such as London or New York, whose own property markets are still prone to boom and bust. The house of cards may have turned into one made from more durable, high-quality cardboard, but there is much further to go. My colleagues on FT Alphaville are not the only commentators to note that the property-bitcoin connection looks, above all, like a way to secure column inches (yes, readers, I have fallen squarely into that trap). But it is also relevant in another way: it raises a point of comparison that makes even Dubai’s property market look stable.