By Shane McGinley
Analysts fear domino effect as oil-rich emirate reins in pace of major developments
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
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
“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.
Undoubtedly the fact that Abu Dhabi is exercising greater spending control will hinder Dubai's recovery, Dubai while it has restructured its debts has large amounts to repay in the coming years and any state profits will also go toward settling these debts.
Many Dubai firms and for employees of Dubai firms are now working in Abu Dhabi, if work opportunities become constrained then they have to look elsewhere, presumably Qatar and Saudi Arabia and that removes a significant contribution to the UAE economy.
Dubai's best bet is tourism, MICE business and re-export the old favourites, and hopefully the 5% p.a. population increase won't reverse. Property really is a non-starter, the recovery will be weakest in that sector. One of the commentators in the article is from Landmark and they are a pretty shrewd real estate outfit.
Once again the so called 'analysts' and 'experts' are clutching at straws . Quoting motivated reports from wannabe investment banks ad nauseam, will not sway genuine buyers who are finding immense value at current price levels.
You're right of course Red Snappa, but I'd observe that many construction managers who take jobs in KSA or Qatar will keep their families in Dubai and commute weekly - I already know men moved from AD projects who are doing this.
Now there is very close competition in market and UAE is doing right thing not to spend upon luxurious projects which can only bring glory and not income this is what i feel.
They are doing right by spending on Shamkhah Project for Emaratis.
We pray for the better future of Uae.
Quite correct, the slowdown in Abu Dhabi impacts us all in the UAE whether directly or indirectly.
Those in construction related industries were looking to Abu Dhabi to shelter for the econmic storm that has halted construction projects in Dubai. However, now these projects in Abu Dhabi are being stalled, it leads to loss of confidence for those in the assoicated industries.
This will impact peoples spending patterns of employees on housing, entertainment, consumables etc, filtering down through the entire system.
Funny thing is, now is the best time to build as costs are so low. If Abu Dhabi waits, Qatar and Saudi will have taken the resources, leading to cost escalation when Abu Dhabi does finally move on these projects.
Again Birdie is blowing the horn of the ignorant and that category includes 90% of Dubai Real Estate brokers of which Birdie obviously is part (the term "genuine buyer" is vintage broker).
That aside, tt is a FACT that Q3 saw only 1454 real estate transactions across the UAE and it is a FACT that Abu Dhabi is cooling down all its megaprojects. It is also a FACT that the 3 year real estate visa is being mothballed.
This is not information from "wannabe investment banks" but mere common knowledge which correlated with common sense leads to the inevitable conclusion that Dubai Real Estate remains in limbo for many years to come.
There will always be some buyers who find the UAE a place to invest. Recently this has been due to the effects of the Arab Spring in other parts of the Middle East.
Here are some economic fundamentals on why the UAE will continue to see a prolonged recovery and slowdown in the property and construction sectors:
Fact 1 There is a glut of surplus property in all sectors of the market;
Fact 2 Population growth expectations are declining;
Fact 3 There is limited market transparency and a fledgling legal framework in place;
Fact 4 Prices and values are falling due to reducing demand for the same product.
Conclusion - lack of demand and an oversupply of product equals a fall in prices. I predict a stabilisation of prices at pre-boom levels of 2000/1. Until there is a sound investment framework in place in the region the UAE will remain a fickle and immature property market. The big question is 'will lessons be learnt?'
The world economy is always making mistakes and then always correcting them. Markets are always discovering what things are worth. They figure out what one thing is worth, conditions change and then the market changes it's mind. There are times when the economy makes a big mistake, especially when it's given the wrong signals from the market. This is such a time and the region's market is having a dramatic change of mind! Real Estate & Financial Services will feel this dramatic change the most.
Mike, I thought by now everyone would have picked up on this - Birdie is not Birdie, it is Omar! remember - rose tinted lenses Omar? It's baaack!
For sure Abu-Dhabi knows what it is doing and perhaps just being prudent like any investor in current climate. No harm there, the providers of goods and services need to follow suit, adapt their strategy accordingly, look for alternatives, maybe a good opportunity for the private sector to fill in the gaps, but definitely no cause to get "upset" over the changing situation (or constantly changing situation...)