A slowdown in Abu Dhabi's construction market could unnerve investors and crimp any fledgling recovery in Dubai's floundering real estate market, analysts have said.
The oil-rich UAE capital has pushed back the delivery of major projects including its planned Louvre and Guggenheim museums, in a sign it may be feeling the pinch of funding its $500bn ‘2030' development plan.
For developers, many of whom had banked on Abu Dhabi to offset the collapse of Dubai's property market in late-2008, the stalling of state-backed projects is a source of concern.
"Abu Dhabi is being prudent from a financial point of view but this will have a big impact not only on Abu Dhabi, but Dubai as well," said Charles Neil, CEO of Landmark Properties.
"This decision will also have a major impact on the construction sector. With fewer people working in Abu Dhabi, rents can expect to weaken and this will impact on Dubai. It will not be good for the real estate sector in both emirates."
Aldar Properties, Abu Dhabi's biggest property developer, said Monday it would slash its workforce by 24 percent as it seeks to match manpower to a scaled-back construction schedule.
The developer was rescued by a $5.2bn bailout by the Abu Dhabi government this year, after it struggled to stay afloat in the wake of a recession that halved property prices across the UAE.
Sorouh Real Estate said this month it saw state-backed housing as a cornerstone of its short-term developments, after winning about $1.5bn worth of government projects since 2009.
Andrew Goodwin, director of real estate consultancy DTZ, said much of the construction industry had pinned its hopes on the security of government-supported projects.
"The development of Abu Dhabi through the 2030 is fundamentally sound," said Goodwin.
"But until the museums are replaced by other infrastructure projects, the postponement is a concern to the market."
UAE-based contractors and real estate developers were hit hard by the global financial crisis with property prices dropping by about 60 percent from its 2008-peak.
About half of construction projects in Dubai, the Gulf's busiest builder until late-2008, were cancelled in the wake of the financial crisis, forcing firms to seek out work in new markets.
Investment bank Arqaam Capital said last week that Abu Dhabi was likely to see further scaling back of non-essential projects as the emirate moves to reschedule its construction aims.
"I can envisage infrastructure - everything from civil and social infrastructure - being completed and handed over. Things like schools, hospitals, roads, contracts on that nature are likely to go through," analyst Mohammad Kamal told Arabian Business.
The bank described Abu Dhabi as "fast becoming the worst construction market in the GCC, after Dubai."
"Cut-throat competition and a scale-down in government plans by 30 percent during the year should have repercussions on backlog and margins on Arabtec and Drake & Scull International," Kamal warned.
A poll of property analysts last week showed respondents believed prices could fall a further 10 to 30 percent as developers add to excess supply in Dubai and Abu Dhabi while buyers dwindle.
Home purchases in the UAE dropped by 44 percent to 1,459 in the third quarter from a year earlier, CBRE Group said this month. That's down from 4,059 transactions in the third quarter of 2008, just before the crash.
Abu Dhabi, the UAE capital and the fourth-largest oil producer in the Organization of Petroleum Exporting Countries, will continue to have a glut of most types of properties, leading to a further decline in rents and purchase prices, Jones Lang LaSalle said on Oct 16.