Dubai UAE real estate price collapse

[MMM]

Dubai’s real estate market suffered the biggest reversal in the world after prices dramatically collapsed from their mid-2008 highs as the investment bubble burst in the wake of the global financial crisis, Knight Frank said on Tuesday May 26, 2009.

The London-based property broker said in a report, cited by news agency Bloomberg, that house prices in the emirate fell 32 percent in the 12 months ended March 31, compared to a jump of 48 percent the previous year.

Nick Barnes, head of international residential research at Knight Frank, described Dubai’s beleaguered real estate market “a mess”.

“A lot will depend on developers and how long they can hold on before getting into fire-sale territory,” Barnes was quoted as saying by Bloomberg.

Knight Frank’s figures less than other analysts, some of which of reported a 40 percent-plus price drop in the first quarter alone.

Dubai’s real estate market has been hit hard by the global financial crisis.

The market boomed from 2002 to mid-2008 after the government opened it up to foreign investment and unchecked speculation drove prices to unsustainable levels.

But the onset of the financial crisis saw demand from foreigners, the majority of investors, dry up and local investors finding it increasingly difficult to secure financing.

Prices have fallen as much as 50 percent from their mid-2008 highs and billions of dollars worth of projects have been cancelled or put on hold.

Nobel laureate Paul Krugman, an economics professor at Princeton University, said on Monday investments levels seen in the UAE’s real estate sector in past years will not happen again for at least “a generation”.

[Sarina]

Nearly one in two investors view economic conditions in the UAE negatively, but investor confidence in Gulf is on the rise, a new study showed on Tuesday May 26, 2009.

A Shuaa Capital survey of 70 members of the investment community found that investor confidence in the Gulf Cooperation Council (GCC) rose 7.8 points to 119.4 in May over April. For the UAE, it climbed 4.4 points to 107.

"The results reveal that the international and regional investment community is clearly less pessimistic on current economic conditions in GCC markets and views the outlook over the next six months more positively," Shuaa Capital said in a statement.

Nearly 44 percent of respondents viewed Saudi Arabia positively and the biggest Gulf economy led Shuaa’s GCC Investor Sentiment Index.

Qatar placed second with 42 percent. UAE came third with 11.3 percent. Kuwait, where the banking sector is in turmoil, stood at the bottom of six GCC nations with 5.6 percent of those surveyed viewing the economy positively.

A number above 100 on the index indicates positive sentiment. One lower than 100 shows a negative view. Kuwait and Bahrain were the only GCC countries where investor confidence fell and was below 100. Kuwait’s fell to 87.3 from 88.5 and Bahrain’s dropped to 96.8 from 97.5.

Nearly 48 percent viewed the UAE’s economy negatively, the survey showed. About 56 percent said they saw Kuwait’s economic climate as negative, making it top of the list. Only 21 percent of respondents saw Saudi Arabia’s economy negatively.

Despite the economic uncertainly, more than half the respondents - 63.4 percent - anticipate Saudi stock markets will rise. For Qatar and Abu Dhabi, the number was 49 and 59 percent respectively. About 42 percent of respondents expect Dubai’s stock market to go up.

Among sectors, one in two expect investors profitability in real estate to fall. About 32.4 percent anticipate that profitability in the tech, media and telecoms industry will climb.

[Salin Arub]

UAE inflation will hit the low single digits this year as a shrinking expatriate population forces rental prices down even further, a senior economist said on Monday, May 25, 2009.

“The nation’s economy is tied to rental prices, when prices were high in 2008, inflation stood at (around) 13 percent. But we can now see as prices drop that inflation is right down,” Mohamed Jaber, vice president at Morgan Stanley, said on the sidelines of a conference in Abu Dhabi.

“If this trend continues then rents will drop even further driving inflation into the low single digits,” he said, without being more specific.

Rents have fallen sharply from their mid-2008 highs as the global financial crisis has tightened its grip on the UAE.

The real estate industry has ground to a halt, economic growth has slowed and thousands of expatriates have lost their jobs and left the country.

Egypt-based investment bank EFG-Hermes forecast in March the UAE population would fall by 5.5 percent in 2009, driven by a 17 percent drop in Dubai, while Swiss bank UBS said last month Dubai's population was likely to fall 10 percent in the coming two years.

“A mass exodus of people from the UAE will hit the economy as rent prices will have to drop further still,” Jaber said.

Dubai rental rates fell up to 34 percent during the first three months of 2009, while rents in Abu Dhabi fell up to 20 percent, according to property consultancy Asteco.

The UAE only releases official inflation figures annually, but Economy Minister Sultan Bin Saeed Al Mansouri said earlier this year inflation was set to fall to between 5 to 8 percent in 2009.

Most analysts estimate inflation will be in the low single digits this year, however
EFG-Hermes has forecast the UAE will actually witness 2 percent deflation due to the population decline.

Inflation is estimated at 11-13 percent in 2008, compared to an official 11.1 percent in 2007.

[Xavier]

A Dubai sheikh being sued by an Iranian businessman over $1.9 billion in property investments plans to file a counterclaim demanding compensation for losses, his lawyer said on Monday.

Shahram Abdullah Zadeh, a former chief executive of Dubai-based developer Al-Fajer Properties, filed the initial lawsuit against the firm and its owner, Sheikh Hasher Maktoum bin Jumaa al-Maktoum, in February, claiming he was the sole investor and real owner of the company.

"We have requested time to file a counterclaim to demand compensation from Shahram (Zadeh)," lawyer Samir Jaafar told news agency AFP following a fourth hearing in the case on Monday.

Zadeh accused the defence of "running away from responding to the lawsuit" against Sheikh Hasher, a brother-in-law of Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum.

He said Sheikh Hasher was registered as owning Al-Fajer Properties, because being a foreigner he could not register it under his own name.

He told AFP his defence had requested the appointment of an auditor to trace capital inflows into the company, and said despite claims that he was just an employee he never took a salary or had an employment contract.

"He was supposed to earn a share of profits made under his management. But the company did not make any profits," Jaafar responded.

Al-Fajer Properties, which since February 2009 has been run by Sheikh Hasher's son, Sheikh Maktoum, filed two complaints with Dubai police in February and March, accusing Zadeh of embezzling 114 million dirhams ($31.06 million).

A representative of Zadeh's lawyer, Salim al-Shaali, called the two claims false and said a complaint about them has been lodged with the public prosecution.

Zadeh is demanding the recovery of all assets of Al-Fajer Properties, estimated in the lawsuit at seven billion dirhams ($1.9 billion).

The judge adjourned Monday's hearing to June 17.

[Trabita]

May 28, 2009

Nakheel, the state-owned developer of Dubai's palm-tree-shaped man-made islands, confirmed on Wednesday it received funds from the emirate's government, some of which will be used to pay contractors as it looks to complete projects.

"Following reports in the media ... Nakheel PJSC confirms that it has received funds from the government of Dubai," the company said in a statement on the NASDAQ Dubai website.

"The amount, terms and use of all the funds remain under discussion but some of the funds will be used for payments to contractors," it said.

Dubai sold $10 billion of bonds to the United Arab Emirates central bank earlier this year to raise funds to support state-linked companies suffering from the financial crisis, and plans to issue another $10 billion in bonds later this year.

Dubai, the Gulf's trade and tourism hub, faces a sharp slowdown in its property sector, with real estate prices tumbling 41 percent in the first three months of 2009, according to property consultant Colliers.

The slowdown has led to project cancellations worth hundreds of billions of dollars.

[Lakhsmi]

May 27, 2009

Dubai's Nakheel, builder of the sheikhdom's Palm islands, will delay planned projects but push ahead with existing developments as the company adjusts to the realities of the global financial crisis, its executive chairman said Sunday.

"Whatever is planned will be shelved, delayed until the market comes back again," Nakheel's Chairman Sultan Ahmed bin Sulayem told delegates at a hotel conference in Dubai.

"Everything we've committed to will be finished, everything that can't be currently financed will be delayed."

Standard & Poor's Rating Services last week put a group of Dubai government related entities on credithingych negative after it learned that Nakheel may have to restructure its debt. The company has a $3.5 billion bond coming due this year.

The global financial crisis is taking its toll on Dubai, with developers like Nakheel hardest hit amid a slump that has wiped an estimated 40 percent off the average price of real estate in the emirate.

Middle East Economic Digest reported last week that international construction companies each owed $272 million in outstanding bills by government related clients are threatening to walkout on projects unless they are paid.

Bin Sulayem said "we're taking it day by day. We're aware of our commitments and we're ready to meet them."

Nakheel's parent company Dubai World, also headed by bin Sulayem, agreed last week to pay MGM Mirage (MGM) its partner in the $8 billion City Center resort in Las Vegas $135 million the casino company paid to fund the project after the Dubai company skipped two of its payments, according to the Wall Street Journal.

At the same time Dubai World said it is withdrawing a suit against MGM Mirage, and will resume paying its share of monthly construction costs for the Las Vegas projects.

Bin Sulayem also said that the company would continue to buy assets in Africa where he said the it was investing in a game reserve in Zimbabwe.

"Africa is somewhere you can see double digit growth. It's somewhere we can add value. It's virgin," he said Sunday.

[Mahmud]

Nakheel, the state-owned developer of Dubai's palm-tree shaped man-made islands, has been merged with the property wing of Dubai Multi Commodities Centre (DMCC), a newspaper said on Monday June 1, 2009.

"DMCC's property-related operations have been integrated with Nakheel to better accomodate current market conditions and optimise resources and expertise," a DMCC spokesman told the National.

Both companies are owned by Dubai World, which is in turn controlled by the Dubai government.

Nakheel said last month it received funds from Dubai's government, some of which will be used to pay contractors as it looks to complete projects.

Dubai sold $10 billion of bonds to the United Arab Emirates central bank earlier this year to raise funds to support state-linked companies suffering from the financial crisis, and plans to issue another $10 billion in bonds later this year.

The emirate's once-booming real estate sector is suffering a sharp slowdown as prices have collapsed, developers slow or cancel projects and jobs are slashed.

HSBC said in a report on Sunday prices were stabilising but values could fall further.

Slumping demand would drag residential real estate prices in Dubai down between 50 and 60 percent this year from their 2008 peaks, EFG-Hermes said last month.

[Peter Harrison]

Dubai property reaches bottom, stabilises
Jun 10, 2009


Dubai's property market - down more than 50 percent in some areas from 2008 peaks - is bottoming out and showing signs of stability, a senior executive at real estate firm Landmark Properties said on Wednesday.

In certain areas of the city, homes are being taken off the market as prices reach levels where sellers are not getting their asking price, said Michael Michael, director of sales at Landmark Properties.

"If you are looking this is the time to buy. I don't see prices dropping any further. I also believe that rents will not fall any further (as was first predicted)," he said. "But while the market is starting to stabilise, I don't think we will see an increase in property prices until next year."

HSBC said in a May report that property prices in the UAE had risen 4 percent in April over March and 5 percent in May. But prices were still down 23 percent from their September 2008 peak.

Michael said that properties on Jumeirah Islands that were selling for 9 million dirhams ($2.45 million) in June last year were now going for 4.5 million. Large family homes in the Meadows area of the emirate were selling for 5.5 million dirhams, nearly half their year-ago price.

Rents in Dubai have also tumbled over the past nine months from their mid-2008 peaks as the global financial crisis has hammered the market. Breakneck-speed development has led to an oversupply, and a falling population - as thousands lose their jobs - has frozen demand.

But a predicted slump in rental prices in June seems unlikely, said Michael.

"People who have previously commuted from Sharjah and Abu Dhabi where rent prices are cheaper are now moving to properties in Dubai, which is filling up some of the vacant property," he said.

"Even if there was a mass exodus of people leaving the country as was previously predicted, I do not believe that rents will drop any further than they already have."

He said rents were beginning to level out and in some places even starting to increase. In Dubai's Springs neighbourhood, the rent on a two-bedroom villa has risen to more than 100,000 dirhams annually from about 95,000 just two months ago.

The rent for a two-bed apartment on the man-made island Palm Jumeirah fell up to 33 percent to between 120,000-175,000 dirhams in May from 140,000-260,000 in March, Landmark said in May.

[Rajiv Sekhri]

20 pct to be wiped off UAE property prices
Jun 11, 2009 at 07:19



UAE property prices have another 15-20 percent to fall before bottoming out at the end of this year and are moving toward stability, Deutsche Bank said in a report released on Thursday.

Deutsche’s study follows other reports saying the real estate market has already bottomed out.

"While we noticed some signs of stabilisation recently, we remain cautious given the limited number of transactions and the continuing declining trend in rents," Deutsche Bank said.

"We identify risks of further weakness driven by the exodus of expatriates and new supply flowing into the market.”

The global financial crisis has taken its toll on the UAE's once-booming property sector. In Dubai - the biggest sufferer - property prices in some parts of the city have fallen more than 50 percent since their peaks in 2008.

Deutsche said the slump had wiped off an estimated 50 percent off Dubai prices since Aug 2008. Abu Dhabi prices have fallen 30 percent.

One of the biggest challenges facing regional developers in coming months will be access to financing and rising defaults by homeowners, Deutsche said in its report.

"Developers under coverage would have to collect about 38 billion dirhams ($10.3 billion) from customers' installments in the next couple of years, which we see as challenging."

Tamweel and Amlak, Islamic mortgage lenders which account for about 60 percent of the UAE's outstanding mortgage loans, need a cash injection of 18.7 billion dirhams to meet their commitments, an unsourced report in newspaper Emirates Business said this week.

Tamweel rejected the report.

HSBC said that prices in Abu Dhabi and Dubai rose 4 percent in April and 5 percent in May. In the apartment segment, which accounts for 85 percent of all transactions, prices rose 9 percent in May.

Standard Chartered said this week "the first signs of stabilisation in Dubai's real estate sector have appeared, taking observers by surprise since further declines were expected. Some caution is warranted as there are still question marks surrounding population flows in the coming months."

[Balay]

1 in 3 Dubai homes empty by '10 -report
Jun 11, 2009

The vacancy rate of Dubai’s homes could double by the end of 2010 with just about one in three homes empty in the once-booming emirate as population falls and new residential property comes on board.

The number of empty houses and apartments may increase from as much as 15 percent currently, Saud Masud, a Dubai-based analyst at UBS AG, told newswire Bloomberg in an interview on Thursday. About 30,000 homes will be completed by 2011, Masud estimated.

“The current estimates are that Dubai is about 10 percent to 15 percent vacant,” Masud said. “It’s probably more, since published vacancies in the fourth quarter hovered around 7 percent.”

UBS said in an April 22 report that Dubai home prices may slump as much as 70 percent from their peak last year. The market’s collapse followed a construction boom that created thousands of homes just as demand began to evaporate during the financial crisis.

Colliers CRE plc said recently that about 64,800 homes will be completed by the end of 2011, lower than the broker’s previous estimate of 140,000 units by the end of next year.

The number of expats, who comprise about 90 percent of Dubai's population, could drop 8 percent this year and another 2 percent next year, UBS said in March, as workers are laid off.

The UAE’s population is expected to contract by 5.5 percent this year, with Dubai's expected to fall 17 percent, according to a March report by EFG-Hermes.

The country's labour minister, however, has refuted population decline forecasts. Saqr Ghobash said in April the UAE had issued 250,000 more labour visas in the past six months than it had cancelled.

[Sohrat]

Dubai property prices and rents recovered slightly in June due to easing pressure of distressed sales and vendors being unwilling to sell at current prices, signaling that the worst for the sector may be over, Deutsche Bank said Monday 29, 2009.

The average house price for apartments and villas rose 6.5 percent month-on-month in June to 1,285 dirhams ($349.9) per square foot, while rents rose 1.1 percent over the same period, Deutsche Bank said in its proprietary price index, which covers 13 locations in Dubai.

"Although monthly data should be viewed with caution given the limited number of transactions, recent numbers tend to confirm the stabilisation in the market we saw in May," said Nabil Ahmed, head of research at Deutsche Bank in Dubai.

"This might not be the bottom yet, but the worst increasingly looks behind us," he said.

The global financial crisis has taken its toll on the UAE's once-booming property sector.

The slump has so far wiped an estimated 50 percent off Dubai prices since their peak in August 2008, Deutsche said earlier this month.

In recent months, as the impact of the global crisis closed in on the emirate, real estate agents have reported softening demand and a lack of buyers, especially property speculators that helped drive steep price increases.

In recent weeks, there have been signs that the market is starting to stabilise, but many analysts are unsure when prices will bottom out or recover.

"We believe the stabilisation in prices was mainly driven by easing pressure from distress sales and potential remaining sellers now being unwilling to sell at current prices, off 50 percent from peaks on average," Deutsche Bank said.

"Our industry contacts confirm that prices have tended to stabilise, even increased in some areas, but the level of transactions/demand remains very low," it said.

Deutsche said it still expects property prices to bottom out at the end of the year after falling a further 15-20 percent.

"We continue to see risks of further weakness on the combination of expatriates' exodus during the summer and new supply flowing into the market in the second half of 2009. However, the worst regarding property prices increasingly looks behind us," Deutsche said.

[MS]

Morgan Stanley expects the United Arab Emirates economy to contract 2 percent in 2009, but projects a "mild recovery" for 2010, the bank said in a research note.

"The worst may indeed be behind us," Dubai-based analyst Mohamed Jaber said in the note, dated June 29.

"Given the recent improvement in the global economic momentum, the rise in oil prices over the past few months, and the general stabilisation in domestic markets, we believe that as far as the UAE is concerned, we may have reached the bottom of this downturn", he said in the note.

During the current year, the UAE, the world's third largest oil exporter, would experience lower domestic oil production levels, with the oil sector contracting by 6 percent as global demand falls away in the economic downturn, Jaber wrote.

The Gulf region has been hard-hit by a drop in oil prices to the mid-$30 range earlier this year after prices peaked at nearly $150 a barrel last summer.

Gulf countries invested heavily during a six-year oil price rally to try to wean their economies away from a reliance on oil export revenues, but most are still vulnerable to price volatility.

Morgan Stanley said there would be a significant downward adjustment in domestic spending in the UAE this year, as well as continued weakness in the real estate sector and significant tightening in domestic credit markets and foreign financing.

The non-oil sector was projected to remain flat in real terms during the year, the note said.

The strength of the recovery of the UAE economy would "depend on the momentum for global growth and the timely resolution of imbalances in its domestic real estate and credit markets," the note said.

Inflation in 2009 was expected to slow to 6.4 percent, compared to a 12.3 percent rise in prices in 2008. This decline would be mainly caused by a projected 15-percent fall in housing rents, the note said.

"This will mainly be driven by the lower expected population growth and the large number of housing units expected to be delivered during 2009-10," Jaber said in the note.

Rents in Dubai, one of the UAE's seven emirates and home to an indoor ski slope and the world's tallest tower, doubled or more during a building boom that came to an end late last year as the financial crisis hit.