“The debt deal was a necessary precondition for Dubai being able to tap international debt markets again, although I wouldn’t expect good news over the next year,” Dr Eckart Woertz, Director of Economic Studies at the Gulf Research Centre (GRC), tells AMEInfo.com.
Woertz’s contention is that while Dubai is currently profiting from a “general rush” into emerging markets in the wake of a second round of Quantitative Easing (QE) by the US Federal Reserve, the trend is unsustainable.
“The OECD countries have sluggish growth, and at the end of the day the emerging markets dynamic relies on exports to the OECD countries,” he argues. “If these exports are not picking up, it will look very ugly for emerging markets. We could see things bottoming out in Dubai, but I don’t really see it yet.”
At Dubai-based investment house Shuaa Capital, Head of Research Amer Halawi agrees that the Fed’s decision to introduce more QE is indicative of a global economic environment that “continues to be in difficult shape”. And even in the wake of the debt restructuring agreement, this uncertainty casts a pall over the emirate.
“In the past few weeks we have seen a very good newsflow and positivity, which has been reflected in the increase in the price of assets, and portrayed by confidence indicators,” he tells AMEInfo.com. “So clearly spirits have improved, but there is still a question mark over what the future holds – no one can guarantee what the economy will look like in 2011 and beyond.”
Halawi points to improvements in growth expectations for the UAE – the IMF has revised its estimate upwards to 2.4% – but says that Shuaa predicts only 1.8% GDP growth in 2010. And while inflation is hovering between two and three percent – indicating a muted pick-up in prices in the Emirates – UAE stock markets face an uninspired 2011.
“The stock market is not rosy, it’s flattish at best, with some bridging of the extraordinary downward gap that we saw from the Dubai debt situation,” he says. “Otherwise there’s nothing really exciting, and third quarter results aren’t very exciting either. From any angle the situation is improving and stabilising, but at the same time it’s certainly not looking very exciting for the future.”
The real estate sector, which witnessed unprecedented growth during Dubai’s boom years, is now the emirate’s greatest concern. According to a report published last week by Colliers International, house prices in Dubai fell six percent in the third quarter from the previous quarter, caused by tightened bank lending and the summer slowdown.
The decline in pricing pushed Collier’s Dubai House Price Index down to its lowest recorded level since the second quarter of 2009, while the price-to-rent ratio in the emirate – which reflects the value generated from rental income of real estate assets – has fallen to 1.23, down from 1.56 at the peak of the real estate boom.
“There had been some stabilisation but it’s hard to say whether we’re at the bottom, nearing the bottom, or a way away from the bottom,” Andrew Charlesworth, Head of Capital Markets for the MENA region at real estate firm Jones Lang LaSalle, tells AMEInfo.com.
“Since the middle of this year we’ve seen quite a significant uptick, if not in activity, then at least in sentiment,” he continues. “We’re seeing investors are returning and are coming back into the office, but now it’s all about risk and stability – they’re less concerned about the upside, and more concerned about the downside.”
Charlesworth contends that Dubai is still the “market of choice” for corporate occupiers, and says that many investors who had looked elsewhere in the region in the wake of the debt crisis, were left unconvinced by alternatives in the Gulf.
“The speed of its development put Dubai at the forefront of the region in terms of infrastructure, development, tourism and lifestyle, and we still perceive it as being the number one market for corporate HQ location,” he argues.
“A year ago a lot of people were saying ‘We’ll invest, but not here’, and they were charging off around the region. However they’ve not found what they want and they’ve swung back to Dubai. And that’s what’s going to really help Dubai unravel itself.”
While this swing is unlikely to manifest itself in an improved real estate market in 2011, analysts suggest that an upturn in the fortunes of the global economy could prove crucial to other key sectors in Dubai.
“The government needs to clean up the real estate mess, and deal with the aftershocks and all the legal work that entails,” says Woertz at GRC. “Otherwise, companies such as Emirates Airlines and Dubai Aluminium are doing well right now because they are more tied into a global dynamic [than a local one].
“Clearly real estate won’t have an improved 2011, but all the sectors that rely on global demand and the global economic recovery should do better – and that means manufacturing, tourism, transport and logistics.”
“Dubai has the infrastructure and is a transport and logistics hub with a remarkable entrepreneurial spirit, and those assets mean it is positioned well for the long term,” echoes Halawi at Shuaa. “But over the shorter term there are questions – how do we benefit from these assets, and how do we fit into the broader global economic situation?
“There can be no certainties in Dubai, in the UAE, in the Gulf, or indeed anywhere in the world,” he continues. “We aren’t living in a void, and we aren’t able to buck global trends. There are challenges that need to be addressed, and we will also need some support, a push, from the global economic environment.
“Over the long term there is no doubt that the appetite for Dubai [among international institutional investors] will increase, but in the medium and short terms there are questions, and 2011 is a big question mark.”
Sunday, November 14- 2010 @ 12:34 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.