Dubai Realty Market - In transition

Dubai Realty Market - In transition

The inflated property boom that Dubai's realty sector was experiencing 12/ 14 months ago could be attributed to speculators who primarily invested in off-plan properties and sold them for quick, hefty profits. A majority of such investors never intended to reside in their acquisitions. Without proper financial backing, they relied on loans and mortgages, using a cut of their profits to remit the dues.

But, as the world economy comes to terms with the ongoing liquidity crisis, credit has virtually disappeared from markets, including Dubai's. This has led the UAE Central Bank and other international financial institutions to tighten their credit rules and policies.

Overnight, the buying patterns have altered dramatically, causing confusion and panic among investors. Rather than a slump in demand, we believe that it is the scarcity of funds that has led to a temporary lull in the property sector. Amlak, the largest home financier in the UAE, announced a week earlier that it was suspending new loans owing to a lack of available funds. The company has since then merged with Tamweel, the UAE's other top lender into the federally administered Real Estate Bank in a bid to stimulate lending and thereby buying.

The developers also have had to face the flak. One of the largest private property developers in the UAE, DAMAC recently declared that it was cutting more than 200 jobs; this was followed by Nakheel's statement that it was scaling back construction plans for Palm Deira. As international investors grow increasingly hesitant and buyers grapple with stricter mortgage rules, property prices in areas like Palm Jumeirah have dropped by as much as 35-40 per cent.

Despite the price corrections and job cuts, the outcome for Dubai real estate market is not as bleak as described in recent reports. The Amlak-Tamweel-Real Estate Bank merger is a timely move that would ensure adequate credit flow into the sector. With greater government surveillance, this would certainly heighten investor confidence levels, encouraging buyers to spend. Established in 1999, the Real Estate Bank provides housing for UAE nationals through the Sheikh Zayed Housing Program.

With a strong economy, the UAE realty industry is expected to register steady growth, if not the inflated growth patterns it showed 2-3 years earlier. Dubai's debts stand at US$80 billion (Dh294bn), which are well within the Government's ability to service, according to Mohamed Alabbar, Chairman of Emaar Properties. The figure consists of US$10 billion Government debt and US$70 billion of debt from state-affiliated firms. The combined value of assets of both the government and affiliated companies amounts to over US$350 billion, which is excluding Dubai Metro, Bridges and Airports.

Although adversely impacted by the global recession, growth in Dubai and the UAE has not ended. The country is the midst of a transition that would have far-reaching consequences on its economy and policy-making. Growth is attainable, but in order to achieve it, tougher decisions have to be announced, including those on financial irregularities and misappropriation of funds. The Amlak-Tamweel merger gives an inkling of what is yet to come

Gulf Projects (US$ Million)

(Source: MEED)

A close study of the above stats would reveal that the liquidity crunch has had little bearing on projects that are currently underway across the GCC. Despite the latest global economic storm, the region is poised to scale impressive growth in the next decade. The combined value of the ongoing 3,813 projects in the Arabian Gulf alone is over US$ 3.4 trillion, a sizable portion of which could be attributed to the UAE and Saudi Arabia. More significantly still, in spite of the global recession, developmental activity in Dubai is continuing. The Dubai Industrial City, spanning 560 million square feet, has revealed that 19 companies are currently investing more than AED 650 million in the construction of their manufacturing units within the industrial township. The Abu Dhabi-based Waha Capital is all set to increase its AED 20 billion ($5.45 billion) investment plan by 2011.