Dubai property developers unfazed despite drop in prices
Property companies in the Gulf emirate still churning out huge projects even as real estate values have fallen and are expected to slide further
Dubai property developers are still turning out some larger-than-life projects even though prices are falling again after clawing back a good chunk of their losses in the 2008 crash.
At the Gulf emirate's annual Cityscape property fair last week, developers said they expected price declines of about 15 per cent this year.
However, they were confident there would be no return to the days when huge projects were abandoned half-finished.
Scale models of new skyscrapers, sprawling villa compounds and leisure centres, including a new indoor ski slope, were rolled out by several companies.
Analysts have signalled a slide in property values, which had recovered significantly in the past two years after shedding half of their value in the 2008 global financial crisis.
Dubai had shaken world markets when it signalled that it might default on huge debts incurred after borrowing extensively to build those ambitious projects.
Thanks to the robust trade, tourism and transport sectors, the economy has since steadied.
"Residential prices have fallen maybe 9 or 10 per cent this year," said Craig Plumb, the Middle East and North Africa research director for Chicago-based investment management company JLL. "We expect prices to go down further over the rest of the year."
Plumb said the decline had "more to do with what is going on globally. Things like [falling] oil prices and the global nervousness with the Chinese economy slowing".
"The Dubai residential market is very much affected by what's going on in the rest of the world because a large number of people buying here are investors coming from overseas," he said.
"There is a negative sentiment largely driven by oil prices … It pushed stock prices down and pushed sentiment against the residential market as well."
The city state, one of seven that make up the United Arab Emirates, is the largest and one of very few markets in the region that has opened up to foreign freehold ownership.
Plumb said prices were likely to fall for 12 more months, while forecasting the drop for this year at 15 per cent.
London-based property consultancy Knight Frank has reportedly put the annual drop to June at more than 12 per cent.
Cluttons, another London consultancy, expects villa prices to lose up to 7 per cent in the second half of the year after dropping 5 per cent in the first six months.
Signs of price softening had begun to show as a result of strict regulations introduced by UAE financial authorities to avoid a new bubble, including mortgage caps.
In particular, they put a cap on mortgage financing at 75 per cent for a first purchase and 60 per cent for a second. This priced out of the market those who could not make down payments of 25 per cent or more.
As a result, Plumb said, prices were not expected to plunge as they did in the crisis.
"We are seeing a much more stable market and that is a sign of better regulation," he said.
Against that background, Cluttons said more than 40,000 units had been announced this year, with in excess of 20,000 to be delivered by 2017.
Ziad Chaar, the managing director of Dubai developer Damac Properties, said "with 53 billion dirham (HK$111.8 billion) of recorded transactions in the first six months … we are sure that this market is a good market".
Chaar cited a growing population and healthy economic expansion, including a rising number of tourists and modern infrastructure, in addition to a stable exchange rate and political stability compared with a wider region in turmoil.
"If we did not know that this market is strong, and that there is a very strong demand, we would not have launched these projects," he said, pointing to scale models of various luxurious projects.
One of the projects on display at Cityscape was Meydan One, which includes plans for the world's highest residential tower, at 711 metres high.
Dubai is already home to the world's tallest building, Burj al-Khalifa, with stands at 829.8 metres.
At the foot of Meydan One, a 1.2km indoor ski slope is set to break Dubai's own world record, Ski Dubai, which boasts a 400-metre slope.
Dubai's Nakheel Properties, the developer of Palm Jumeirah and the World Islands, announced that it aimed to bring 10,000 units on to the market in the Jebel Ali area.
Savills, another British real estate consultancy, ranks the UAE as the world second-best country for residential investment, after only the United States.
It said Dubai's market had "matured" and that softening prices were expected to pick up again in the middle of next year, as the country prepares to host the Expo 2020 trade fair.