By Andrew White
In these uncertain times, investors are looking for a sign the real estate sector can adapt to the shifting global economic climate.
There was an air of unreality at last week’s Cityscape event. No change there, you might think — we have long got used to the fantastical models of contorted towers, billion-dollar figures tossed around like confetti, and outlandish announcements in which every project is declared ‘unique’ and ‘iconic’.
Yet while everybody was busy looking at the sky, craning their necks upward to the tip of Nakheel’s new mega-tower, the markets on which the Gulf’s economic foundations are set were dropping through the floor.
Over the course of a week intended to celebrate the strength of the Gulf real estate market and reassure investors spooked by the collapse of housing markets in the US and Europe, hundreds of millions of dollars was instead wiped off the market capitalisations of the region’s property players.
By the end of trading on Wednesday, shares in Emaar, the Middle East’s largest real estate company by market capitalisation, had dropped 29 percent so far that week, and 63 percent year-to-date.
In Saudi Arabia, Dar Al Arkan Real Estate was down 23 percent that week and 50 percent year-to-date, while Qatar’s Ezdan Real Estate finished down 56 percent from its early May high.
The Gulf’s five biggest publicly-traded real estate firms were down an average of 40 percent in 2008, and Cityscape week — the supposed highlight of the Gulf real estate calendar — ended up as one of the bloodiest on record.
It was reported last week that some of the scale models used at shows such as Cityscape cost real estate clients as much at $272,000 a pop. As the markets continued to tank, the suspicion dawned that some of those scale models might actually represent a better long term investment than the towers they are meant to symbolise.
Looking forward, we may be on the cusp of a new wave of consolidation in the Gulf property market. In any other region, the Gulf’s real estate giants would be prime targets for a takeover, yet the Gulf’s strict foreign ownership rules eliminate that possibility.
Rumours of a merger between two of the UAE’s largest real estate developers surfaced last Monday and have not died away despite noncommittal shrugs from the two parties. And nor will they as long as the Gulf’s real estate titans continue to shed weight so dramatically.
In these uncertain times, investors are looking for a clear sign that such a critical sector is able to adapt to the shifting global economic climate. Even Gulf developers will be unable to reach for the sky, without first planting their feet firmly on the ground.
Andrew White is the deputy editor of Arabian Business English.