By Daniel Shane
Ratings agency says supply/demand mismatch could lead to repeat of 2008 crash if not managed properly
Dubai’s successful bid to host the World Expo 2020 could lead to a new cycle of boom and bust in the emirate’s real estate sector if growth is not handled correctly, leading to a sharp drop in property prices in the immediate aftermath of the event.
On Wednesday night the Gulf emirate beat off bids from three rival cities to secure the rights to host the six-month event, which showcases innovations in sectors including technology, healthcare and science.
Dubai hopes to attract up to 25m international visitors to Expo 2020 and will spend more than $8bn on new infrastructure and the 448-hectare venue, creating 277,000 jobs in the process.
However, a report issued by credit analysis firm Fitch after the announcement warned that the longer-term economic impact of Expo was difficult to forecast and that a mismatch between supply and demand could dampen its real estate market.
The scale of the planned expansion also creates a significant risk that there will not be enough demand to support the new hotels, offices and retail space once the expo is finished,” the report noted.
Fitch said that the emirate would need to manage its investments and growth carefully in order to avoid a repeat of the scenario in 2008, when property prices plunged by as much as 60 percent amid the global economic crisis.
“A big enough mismatch between supply and demand following the event would create the risk of another sharp drop in real estate prices,” the report continued.
The Fitch report also questioned how Dubai would fund Expo 2020. It said it expected government-related entities to take responsibility for infrastructure improvements, with major developers handling hospitality facilities.
“Real estate developers have made progress in attracting new investment to the sector in 2013 and in repaying or refinancing upcoming maturities. We will examine the plans of Dubai and its leading real estate developers and assess their impact on ratings as they are announced,” Fitch noted.
Oh dear. What have the EXPO Voters done?
Great article, oh dear oh dear be careful !!
alot of cities that hosted the expo event are still till this day owning money on it, we are talking 20 and plus years of debt from an event that lasts months. the dubai government is heavily indebted and it doesn't make sense to go deeper in debt. it is believed in a couple of years the low rates of global economies will start rising making borrowing money more expensive. i was so excited to hear we got such an event but i'm so scared that such event will cause a bigger bust than the one a few years ago.
Dubai as an Emirate has the biggest advantage of having 6 adjacant emirates to it. Instead of building New appartments, and Hotels if they only concentrate on Roads, Trains and other effecient transport systems they would be able to avoid another BUST in real estate sector.
EXPO-NENTIAL cost of living. Lets see how long before Salik, Fuel, DEWA, DU, housing taxes etc will rocket. This is the start of a painful road.
To all the naysayers: No Guts, No Glory!
Sheikh Mohammed is a visionary leader who knows exactly where he is taking his country. Our best wishes are with him and the people of the UAE.
Dubai knows what it wants and it will reach its goal one way or the other. It will get the money needed to build for the Expo and will repay all its debts. Dubai's visionary leadership can and will do what is necessary to have a successful Expo and have a strong economy.
Learn to Earn ... not cry for ever ....
i agree with you but sadly we all know thats not going to happen