Difficult couple of years ahead for Dubai
Posted on 11 April 2009 with no comments from readers
Dubai Government officials have tried to sound upbeat in recent days, saying that the ‘bad times’ are now in the past, and that might be technically correct – with property and equity prices now so low that the additional possible downside is limited. Yet there are few in local business who do not see a hard road ahead.
Dubai Land Department figures showed some buyers getting extraordinary bargains last week with a total of 12 villas changing hands for an average of $286,000 each, and 535 apartments sold for an average price of $193,000. Agents talk of ‘distress selling’ and indeed at these price levels the downside is relatively low for buyers.
$10bn bond
However, the idea that the $10 billion raised from the UAE Central Bank in a government bond issue will restore the Dubai boom looks wide of the mark. This is a substantial sum. But there are billions in loans to refinance, interest to pay on $80 billion in total debts and a lot of money now outstanding to contractors.
Dubai has the unenviable task of unwinding a real estate boom in the face of the worst global economic crisis since the 1930s. That is a major challenge even with the rich UAE federation as a lender of last resort.
There are difficult choices ahead. From personal observation it is clear that some construction work is proceeding on The Palm Jumeirah, Downtown Dubai and the Burj Dubai, and Business Bay. On many other sites across the city work has stopped, and it is hard to see how this will restart anytime soon.
Global trade has fallen off a cliff in the first quarter of 2009, and Dubai as the trading hub of the Middle East has clearly been affected.
The oil market also looks unreasonably strong given this collapse in trade and slumping economies around the globe. The International Energy Agency has warned that oil demand will drop by 2.4 million barrels per day in 2009, citing a growing consensus that economic recovery will be delayed until at least 2010.
Oil price squeeze
Collapsing oil demand does not square with an oil price of $50 a barrel, and a lower oil price will squeeze UAE hydrocarbon revenues further, dampening an already poor outlook.
That said a proactive government is always to be praised. And Dubai has $10 billion to spend wisely on making sure key projects are completed and debts honored. But some faster action on creating a new home loan company would also be much appreciated, and help to put a floor under collapsing real estate prices.
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Hi, good article. Just one question. Based on what information do you say that “It is already clear that construction work is proceeding at full speed on The Palm Jumeirah, Downtown Dubai and the Burj Dubai and Business Bay.”?
I work on the Palm Jumeirah and as a consultant, the client has terminated our services effective immediately. I can’t give details but our company is involved in the broadest sense of the project, not just one small aspect. In turn, our company has made all of us redundant, because our other 14 high profile projects in dxb have also been stopped, therefore we cannot be redeployed to other sites.
This is one example, but similar may apply for Downtown Dubai and Business Bay. Can you verify your statement that construction is progressing at full speed on these projects? Are the clients firing consultants and contractors but still somehow building the project?
Thanks for a good article. Cheers
Thanks Nazeer, and very sorry to hear your news. My statement is from personal observation – usually the only reliable source but not in this case it seems. I will amend the article.
Hi Peter, good analysis. ame remark as Nazeer. Another aspect is the lost trust from investors in the system. Late drama about Service charges increase when some projects were supposed not to increesae SC for 3 years. Most projects have not delivered on promises (JBR by Dubai Property is the worse case).
What Dubai needs to sort out now are laws that protect Investors against Developers greed. When that is up and running in actual cases, then Investors may start looking at Dubai again.
I don’t see construction work proceeding at full speed at the moment. Many projects are still on hold and many units are still on the market for sale with no buyers. Walk into any real estate office and look at the list of homes they have available for sale or just look online and the huge list speaks for its self.
Dubai will rebound but not now.