Property delivery delays likely to stop further Dubai price falls

Dubai has managed to slow and even reverse property price declines this year by delaying the delivery of new apartments whether due to a lack of finance to continue or deliberate policy.

It is this slowdown as much as a recovery in the market due to the Arab Spring influx of new residents and tourists that should safeguard house prices over the next couple of years.

Project delays

Officials have long ridiculed estate agents’ estimates of tens of thousands of new units hitting the market as very wide of the mark. Their forecasts often include delivery of projects that stalled or were cancelled years ago.

Even some of the developers’ proud boasts about project deliveries in 2012 look rather empty when you actually visit these sites where work has still yet to actually  get going. You need cash to pay contractors and you need to find contractors prepared to work for previously unreliable clients again.

Of course there are certain districts where supply will soon exceed demand. If you look at the northern end of the Dubai Marina and consider that an 80-storey building with ten apartments per floor is another 800 units in need of tenants then you can see some oversupply.

But then again if you want a particular type of villa in The Meadows there is already a shortage of supply that is bidding up prices and leaving estate agents frantically searching for more villas for sale. Nakheel’s Jumeriah Park nearby might deliver more villas but with nothing happening on site, not anytime soon.

Double-dip recession?

A lot will depend on the success of the Dubai economy over the next few years. If the recovery driven by Arab Spring liquidity picks up then new property supply will be taken up more smoothly than the pessimists expect.

But if the global economy takes a knock – with eurozone and Chinese tourists staying at home – then the property supply will be harder to absorb, and the more pessimistic view of a 15-20 per cent downside articulated recently by Arqaam Capital is possible.

However, any downturn in the global economy might take mortgage rates lower again in the UAE and give a boost to affordability. Many residents are already concluding that if house prices are down 60 per cent from peak levels they cannot fall much further, and that stopping rental payments sooner rather than later is not such a bad idea.