A standard quip when visitors arrive in Dubai and marvel at the great number of skyscrapers and extraordinary buildings and developments that have risen from the Arabian desert sand in what seems like no time at all, is to say: “It’ll be great when it’s finished”.
Quite when that will be is anyone’s guess as the proliferation of cranes jutting out over the emirate’s skyline shows little signs of declining.
Developers continue to build at breakneck speed, and completed around 21,000 residential units in the first half of the year, according to Property Finder. While more than 38,400 additional residential units are scheduled to be completed by the end of the year.
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This excess supply, coupled with sluggish economic growth, continues to hammer property prices throughout the emirate. Prices have dropped about 27 percent since October 2014 while Emaar Properties, the biggest developer in Dubai, last month revealed a 4 percent decline in first half revenue.
While Standard and Poor’s ratings agency said earlier this year that property prices in Dubai, where full foreign ownership is allowed, have slumped to levels close to those seen in the 2009-2010 crash.
It said prices will continue to fall until they stabilise either next year or in 2021.
Sean McCauley, CEO of Dubai-based real estate firm Devmark, tells Arabian Business: “There has been a large influx of new units launched into the market over the past 18 months and whilst the transactional activity is arguably healthy, the demand is not sufficient to absorb all the inventory available, hence the sales performance figures are down sharply for most developers.”
Haider Tuaima, head of real estate research, Real estate consultancy firm ValuStrat, agrees: “Since 2015 the supply market saw much of the promised handovers delayed over the following years causing a glut of completions within the following two years. Moreover, 2017 saw a record number of newly announced projects that were met with record off-plan sales, most of the these projects require two or three years to complete, adding to current supply glut that Dubai is experiencing today.”
Addressing the glut
Something had to be done. And last week it was. Dubai’s Ruler, Sheikh Mohammed Bin Rashid Al Maktoum, announced the creation of a panel to address the glut in the property market, to be known as the Higher Committee for Real Estate Planning.
The committee, charged with the perilous task of rebalancing the industry over the next ten years, will be headed by Sheikh Mohammed’s son and deputy,Sheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum, and include representatives of top property developers in Dubai.
“Today, we formed in Dubai a higher committee for real estate planning… with the aim to achieve a balance between supply and demand,” Sheikh Mohammed, who is also Prime Minister of the UAE, said on Twitter.
Sultan Butti Bin Mejren, director general of Dubai Land Department (DLD), welcomes its launch and says it would create a sustainable environment for investors and companies in the sector.
“Controlling supply and demand will be the key to real estate sustainability for the coming years, along with dependence on proper planning, especially as it is the first guarantee factor that helps us to reach the objectives of our plans and predefined strategies with great precision,” he says.
It is that aforementioned balancing act between supply and demand which may be most difficult, given the appetite, even in the current climate, for projects to be launched in the emirate. And the upcoming Cityscape Global, due to be held in Dubai towards the end of the month, will be an ideal gauge on sentiment in the market, with the event traditionally bursting at the seams with new, grandiose projects and developments for Dubai.
Swapnil Pillai, associate research expert at Savills, admits: “In recent years Savills has seen a growing disconnect between available supply and buyer demands and preferences.”
He adds: “With any maturing market it is imperative that more sophisticated planning methodologies are adopted to sustain stable growth in real estate.”
Sheikh Mohammed has called on the committee to ensure that property projects add value to the economy and do not duplicate each other – placing more of an emphasis on quality as opposed to quantity.
The real estate market has historically been a significant sector for foreign investment in Dubai. The sector accounted for 7.2 percent of the emirates’ gross domestic product (GDP) in 2018.
And Taimur Khan, associate partner, Knight Frank, agrees that the additional structure will reap rewards in terms of investor confidence. He tells Arabian Business: “A strategic plan is also likely to lead to more thought-out developments and communities, allowing for greater value capture to be achieved.”
Members of the committee will include companies such as Emaar Properties, Nakheel, Dubai Properties Group and Meraas Holding, according to a statement posted on the government’s Media Office website.
It “will assess the state of the real estate sector, study the needs of the market, evaluate all future real estate projects, develop an integrated plan for the real estate sector to regulate and control the pace of projects,” the statement said.
At a separate press conference last week, Mohamed Alabbar, chairman of Dubai property giant Emaar, admitted he knew very little about the committee, but trusted that it would be for the good of the industry and the good of the local economy.
And he dismissed fears that his company’s business plan may be forced to change should the committee decide a slowdown in development is the way forward.
He said: “I believe that the industry will have companies that will have business plans, that have shareholders, that have debt, bonds, and we are a company that is commercially driven, answerable to our shareholders. I don’t see any change in my business to be honest.”
Damac, in a statement to the Dubai Financial Market (DFM), said its Q2 net profit dropped to AED50.6m ($13.78m), down from AED378.2m ($103m) in the same period last year. The developer’s revenue fell to AED971.1m ($264m), a drop of 45 percent.
It will come as no surprise then that the latest government announcement and initiative has been warmly welcomed by the company.
Niall McLoughlin, senior vice president, marketing and corporate communications at Damac Properties, says: “The real estate market is maturing, and as a key driver of the economy, the introduction of government initiatives will help achieve balance and efficiency, enabling the city’s progress towards its long-term goals.”
The UAE Cabinet has already taken steps to rejuvenate the industry, with measures including the granting of 100 percent ownership of non-free zone businesses by foreign investors, the decision to grant 10-year visas for investors and professionals and the law that grants retirees over the age of 55 longer residency visas, which are designed to encourage investors to purchase property in Dubai, not only to live in but also as long-term investments, boosting market confidence.
Built and they will come?
However, in spite of the latest announcement, Thierry Delvaux, CEO of JLL MEA, feels that more regulation may be needed.
He says: “The ‘build it and they will come’ model has served Dubai well in the past but now is the time to be reviewing this approach and create a more balanced market. Achieving this objective will inevitably require more controls on the level of future supply than have been implemented in the past, but it is an initiative set to improve the country’s long term economy.”
Concerns have been raised over the role private developers will have in competition with the government-backed developers.
But Matthew Gregory, director of sales, dubizzle Property, tells Arabian Business that the industry will benefit as a whole from having all parties around the table.
He says: “The benefit of having a committee with representatives from both regulatory authorities and private developers is that there will be an increased dialogue on upcoming projects and expected supply.
“This strategic move by the government will allow the committee to have full transparency of the market and assess the economic feasibility of new projects to counsel accordingly. Ultimately, this will increase investor and developer confidence as the issue of oversupply will be monitored and controlled.”
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