Dubai's Emaar faces market oversupply risks, warns Moody's

Ratings agency says raft of new project launches by Emaar and other developers poses risk of oversupply in emirate

(AFP/Getty Images)

(AFP/Getty Images)

Dubai's Emaar Properties faces a risk of oversupply in the emirate's real estate market, ratings agency Moody's said in a report on Tuesday, as the developer launches new projects and embarks on expansion of its existing assets.

Dubai is still recovering from its 2009 debt crisis but property firms have launched a slew of new housing, retail and hospitality projects - stoking fears of another boom-bust cycle in the emirate's real estate market.

Most recently, Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum announced plans on Saturday to build an entertainment and hotel district that will include the world's largest shopping mall and over 100 hotels.

Emaar has also launched many new residential projects this year and is also expanding its flagship Dubai Mall.

Moody's said while Emaar's hospitality and retail assets provide a cushion against market volatility, more developers are launching similar projects and thereby running a risk of overcapacity.

"There is a risk that the company embarks on a significant multi-year capital spending plan in the current market up-cycle to not only launch new developments but also expand its hospitality and retail assets at a time when competitors are increasingly becoming active in these sectors, which could create overcapacity," said Rehan Akbar, Moody's analyst and author of the report.

Moody's rates Emaar Properties at Ba1, one notch below investment grade, although its malls unit - which Emaar plans to list in Dubai later this year and which sold a sukuk for the first time last month - is two notches higher at Baa2 due to the strength of the company's retail business.

Dubai's market has rebounded strongly over the past two years and home prices have already reached the pre-crisis levels that were achieved in 2008.

Regulators have introduced a series of measures to curb speculation in the property market, including an increase in property registration fees.

But Moody's said these measures were not sufficient and added that home prices have already at the "upper bound of affordability" for many buyers.

"...recently launched projects are being traded at 5-30 percent premiums and developers are increasingly marketing projects with lax payment plans," it said.

The International Monetary Fund has repeatedly warned Dubai of a potential real estate bubble and said stronger measures were needed to counter property speculation.

Shares in Emaar were down 0.5 percent at 0705 GMT in line with the Dubai bourse which also retreated by 0.1 percent.

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Posted by: Non-Muslim

The next bubble coming with even more hot air in it!

Posted by: Arjun

Simon spot on man....nit everyone realises that even now. Same here bro live life king size on cash only and I'm very well off than 2010. Love it

Posted by: Red Snappa

Let's face it Dubai is a relatively small place and is unlikely to become the epicentre of world affairs ever, it is not London or New York. Thus there is a limit as to how much real estate that can be built and reasonably filled, given the political and military conflicts raging around the region.

The last credit crunch and property market crash was an extremely cautionary tale, the consequences of which have been largely ignored from the end of 2012 and especially since the World Expo event award.

As an earlier correspondent pointed out, there is simply too much outstanding debt lurking in the background, meanwhile AB are reporting elsewhere on the site that Dubai Holding say they need to raise $6.8 billion to build a new mega mall!

The model is flawed methinks.

Posted by: Andre

it's a similar strategy as to playing Monopoly..! Quickly build/buy as many hotels/properties as possible in the hope that as many people "land" on your properties. But that's Monopoly, this renewed (and the pre-08) development wasn't/isn't - or was/is it..?? The big difference: all and sundry seem to have a "get of jail free" card.

Posted by: Simon

I think the second Paragraph of the article sums the whole economic situation up.

Dubai is still recovering from 2009 but has embarked on another massive spending spree...on borrowed in 2003-2008.

We haven't paid off our previous debts but are spending more into the future than is possibly far as 'Moodys' and others are concerned.

Unfortunately, the populous of Dubai thinks the debts of 2003-2008 have all been paid off and this time its being built on earned money...its not. Its being ramped up on borrowed money...again.

How will it end? I couldn't really say on this site...but...I still have my 'T' Shirt from the last time...but...on this occassion, I have no debts whatsoever. I am clean of debt and prepared.

I pitty those who have used debt for the last 4-5 years to survive and found, even in the new 'boom', their debts have not decreased. That is very telling indeed of the 'real' situation, to the normal person living in Dubai.

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