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If ever there was company in misery, this is it. From Moscow to Mumbai, Dubai to Düsseldorf, real estate is taking a dive. Lending is in full-scale retreat. Investors are nowhere to be seen. Property companies are fighting to stay alive. And speculators are discovering that gravity is a universal concept. A fast ascent can be followed by an equally quick decline.

"Will this end in ghost towns? No," says Steve Collins, a managing director at Jones Lang LaSalle Inc. "Is this the end of an unbelievably, rocket-type escalation? Yes."

The bubble has burst in the global property market. With few exceptions, air is escaping rapidly from commercial and especially residential real estate, whether in North America, Europe or Asia.

A bubble it was. Prices in major Chinese cities, for example, doubled in 2007, according to the Global Property Guide. Fueled by oil money and property speculators, Moscow real estate was jacked up to some of the most expensive in the world. Spain and Ireland saw more price inflation in residential properties than did the U.S., says Raymond Torto, global chief economist for CB Richard Ellis.

We hear about stock markets worldwide getting clobbered on an almost daily basis. The Shanghai Stock Exchange Composite Index, for example, topped out at 6,100 in October 2007. It now hovers at about 1,700, a more than 70% drop. Shanghai's property market, by contrast, didn't begin to fall until the summer. Now, watch out. Residential prices dropped 20% in July over June, according to the Japan Economic Foundation. The worst is yet to come. In 2006 alone, construction began on 1 million condo units in Shanghia. Think South Florida on steroids.

Speculators financed most of these high rises. "Clubs" would buy in and then flip their purchases for tidy profits, sometimes the next day, Collins says. Many of these are coming on line just as the market collapses.

With the exception of London, which led the U.S. in a property selloff, most countries didn't see a downturn until shortly before September's financial meltdown. It isn't certain whether that's because of the longer-term nature of real estate development, whether holding real estate can be more permanent or simply because property doesn't necessarily move in tandem with the stock market. These property markets are making up for lost time.

"Last month was a real disaster and worse is coming," a Dubai real estate agent told Zawya Dow Jones last month. Dubai, like Shanghai, is overbuilt. Ditto for Moscow. Property prices are tumbling. Next year could be the worst for construction since Russia's financial crisis of 1998.

Institutional buyers fueled large-scale development internationally. Private equity firms plowed billions into real estate funds that stretched from South Asia to Central Europe. India boasted of property fund sponsors that included a who's who of U.S. investors: American International Group Inc., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. The fate of their projects is unknown.

In Mumbai, reports The Economic Times, developers are getting desperate, offering buy-one-get-one-free condo deals or a car thrown in for free. In September, the paper reported, PE-related transactions totaled $12 million, compared with $427 million the month before. Analysts expect a 15% to 20% drop in real estate prices by the first quarter of next year.

In many places, even more solvent institutional investors are trying to dump real estate holdings. In continental Europe, however, distressed sales could take "six months or more to materialize," says Jones Lang LaSalle in a report released just after the U.S. elections. What PE money is left is sitting on the sidelines. Managers are more interested in buying property-related debt, which can yield 15%, than investing in equity.

Most construction under way -- at least that with loans already locked into place -- will continue, Torto says. But new development "is pretty much shut off. The cost of debt is very high. The amount of debt available is very low." Eventually, the sentiment will turn. For some countries, that could come as early as the second half of next year, Collins says. For others, it could take another three years. But for now, "there's a real lack of confidence in the system," Torto says.

Source: http://uk.reuters.com/