Dubai market is weak again, but the developers and construction plans despite of the drop in property prices are not willing to stop their work and are not worried about like 2008 crash.
Sales volume have lowered in the emirates, a few structural changes to market such as tighter regulations together with fewer people and developers should ensure a much better end this time, according to industry consultants.
Dubai is although a small curde producer compared to Abu Dhabi, but it will also see the effects in the drop in oil prices and all the projects annoumced will be funded.
Dubai property prices has been much fuctuation in the last decade. Residential prices in emirate dropped 50% from third quarter of 2008 peak to 2009, also hit by another downfall in early 2010, according to industry consultants Cluttons estimate.
Prices then rised again from 2011 following the incoming money and people also settled in several Arab countires, recovering to within 18% of 2008 peaks.
And from 2014 the values started dropping again, they fell 3 to 5% in 2015 and predicts a similar fall this year, CBRE says prices declined about 15% last year and predict another 10% drop in 2016. This effected the developers.
Emaar Properties says it will not change its plans despite sales revenue falling 28pc to 7.51 billion dirhams ($2.04 billion) in the first nine months of 2015.
Emaar is progressing as scheduled with all its projects launched, said Emaar, builder of the world’s tallest tower, the Burj Khalifa.
The company, one of four big players in the Dubai market, has a backlog of projects worth 24.1bn dirhams in the wider United Arab Emirates.
Sales enquiries have continued to be robust, led by strong interest from regional and international investors.
Echoes of 2008
Property markets can be driven as much by sentiment as supply and demand, so such overt bullishness is perhaps understandable. However, it ignores a 19pc decline in Dubai unit sales and a 24pc drop in the combined sales value in 2015, CBRE estimates.
It also echoes 2008 when that October the developer Nakheel announced plans to build a kilometre-high tower, which at almost 200 metres more than the Burj Khalifa would be a global record.
Barely a year later, Nakheel sought to restructure about $11bn in borrowings and property prices were in free fall. Today a Dubai metro station is named after the lofty project, but the tower has yet to materialise.
Dubai has doubled property transaction fees and imposed tougher deposit requirements for mortgage borrowers. While this has helped to prompt the current downtrend, inflicting such short-term pain may ultimately lessen volatility by minimising speculative trading.
This marks a significant change from 2008.
Damac Properties, Dubai’s largest independent developer, also says it has not slowed construction as there is demand waiting to be met.
“There will continue to be an under-supply of completed units in the market; based on Dubai’s economic growth, demand should outstrip supply,” said a Damac spokesman. “It’s very much business as usual.”
Dubai officials have remained optimistic on economic growth in the emirate which has diversified into areas such as tourism more than larger oil exporters. In December, a government official estimated 2015 growth at around 4pc, close to levels of recent years.
However, the United Arab Emirates (UAE) has said it will be hard to achieve growth of more than 3pc across the emirates this year.
The spectre of over-supply still haunts the property market after the crash, which was partly due to an abundance of units being completed almost at the same time.
Over the last five years only about 35pc of residential units slated for handover in a given year were delivered to buyers, consultants JLL estimates, with sales delayed until subsequent years.
Oil impact
Oil is thought to constitute only about 4-5pc of Dubai’s economy, but the effect of the crude price slump will be greater than this figure implies.
“There’s a ripple effect (into) office demand, the amount of trade hotels get, business activity, amount of flights, retail spend,” said Alan Robertson, JLL’s MENA chief executive.
Lower oil receipts have tightened liquidity. Government deposits in the UAE banking system fell by 56bn dirhams in the 12 months to September 2015, National Bank of Abu Dhabi reported.
“This will have a direct impact on the mortgage market, which is already very restrictive,” said Clutton’s Durrani.
Project funding is likely to be a problem this year.
“There are a lot of new projects being announced but where are they all going to get the money from?” said Craig Plumb, JLL MENA Head of Research.
Of the four developers that dominate in Dubai, three ─ Emaar, Nakheel and Dubai Properties ─ are ultimately state-controlled, making it easier to coordinate supply.
Currency fluctuations are another factor. Foreigners accounted for four-fifths of the combined value of Dubai property purchases in 2015, CBRE says, with Indians, Britons and Pakistanis among the biggest non-Emirati buyers.
The dollar, against which the UAE dirham is pegged, has gained about a fifth versus the euro and sterling since mid-2014. The Indian rupee has likewise lost ground.
“People who really want to sell are willing to accept considerably lower prices,” said Alexander von Sayn-Wittgenstein, sales director at luxury property broker Luxhabitat. “The official price may be the same but when a buyer makes an offer that is much lower, the seller is more flexible and will likely accept a price they wouldn’t have a year ago.”
“The underlying factors are broadly the same ─ such as oil prices, lower state spending and the need for governments to raise taxes which will add to inflationary pressures,” said JLL’s Plumb.
Most analysts predict Dubai’s hosting of the Expo 2020 exhibition will help the residential market bottom out over the next 12 months. Demographic trends are also favourable, with the city’s population forecast to double to 5m by 2030.
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