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.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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