Debt crisis in US, Europe poses new challenge for Dubai’s property market
The mood at Cityscape Global in Dubai was slightly more upbeat this year compared to 2010 as developers touted the progress that the market in the emirate has made in its efforts to recover from the financial crisis. “Last year things were still on the decline, so there is probably a stronger sentiment than there was last year,” said Craig Plumb, Head of Research at Jones Lang Lasalle MENA.
Investor interest in Dubai’s property market has risen and the sector has seen an influx of money so far this year, especially among investors from other countries in the GCC. However, this interest remains focused mainly on a narrow band of completed, incoming producing properties, with little or no demand for partially completed or poorly let projects, JLL said in a report issued at the event.
Speaking at a Cityscape panel, Damac Properties managing director Ziad El Chaar said that Dubai is a tale of two completely different performing markets, referring to the developments located near Sheikh Zayed Road and those farther afield near Emirates Road. Demand is very strong for developments near SZR, but developments on the outskirts of the emirate near Emirates Road will continue to struggle until more of their infrastructure is completed, he said.
Positive trends emerge
El Chaar said that rather than dwelling on the hardships that the Dubai market has endured, developers should focus on the progress that has been made so far this year. He urged developers to do a better job of touting the fact that the sector now has more affordable properties and is better regulated.
JLL’s Plumb agrees that Dubai developers have a more positive story to tell. “The Dubai market is better positioned than some of the other markets in the region to recover. They have built more of the infrastructure that they need to build, the prices have already adjusted, the regulatory system is a bit better in place than in some of the other markets, and I think the Arab Spring has reconfirmed that Dubai is a relatively stable market,’ he said.
However, he also warns that the storm clouds that are looming over the global economy could wreak havoc on the Dubai market. “If we have learned anything from the 2008 financial crisis, it is that Dubai is very closely linked in to the global economy. So if things do go pear shaped in Europe and the US then that will inevitably put further downward pressure on Dubai,” he said.
Another ongoing concern is oversupply in the market. “Our expectation is that there will be about 5,000 units finishing this year,” Plumb said. “And at the moment, there are 27,000 units in Dubai scheduled for completion next year, but it’s not realistic to assume they will all be completed. So our best estimate is that about 15,000 of them are likely to be the completed, but that is still a significant amount of new supply. So we are expecting that to keep the market a bit depressed in terms of price for the next few months.”
Factors that could help boost the market would be more transparency about projects that are being frozen, Plumb noted. “Rera has announced that they have cancelled 217 projects, but they haven’t announced which ones, so that would be very useful to see that,” he said.
At the same time, banks could be doing more to help kick start the market, including cutting their lending rates. “If you look at international lending rates, they are a lot cheaper than Dubai,” Plumb said. “Banks could also provide more clarity on their interest rates. There have been a number of mortgage lenders that have been changing the interest rates, which has caused some friction amongst people that have taken out those loans.”