By Andrew White
Ratings agency predicts emirate's real estate and construction sectors will keep weakening.
Ratings agency Fitch has warned that Dubai’s real estate sector could face a ‘double-dip’ contraction, and that the sector is likely to remain under pressure until at least 2012/13.
In a note released Sunday, the ratings firm said the outlook for the sector remained negative, and said that corporates may face “significant” refinancing risks given upcoming debt maturities in 2011/12.
“Despite signs that conditions may be stabilising, as well as a recent round of debt restructurings and extensions, Fitch believes that the credit outlook for the sector remains negative,” said Bashar Al Natoor, director of Fitch's EMEA Corporates team in Dubai.
"The sector is likely to see a period of stagnant growth at best, and a 'double-dip' contraction at worst," he added.
Fitch said it expects Dubai's real estate and construction fundamentals to continue weakening, with increasing customer delinquencies, limited liquidity, and a continued historical reliance on short-term maturities. Oversupply, limited mortgage availability and rising interest rates will also pose significant constraints for real estate companies and buyers, it said.
The note also warned that without significant improvement in market conditions, sizeable disposals or additional equity raising, and significant government support, it is unlikely that developers will deleverage quickly enough to repay the upcoming 2011/2012 maturities from internal resources.
“The availability and the cost of debt for Dubai, and subsequently the corporate sector, is also likely to deteriorate and result in investors demanding higher risk premiums,” the note said. “This trend is already being reflected in credit default swaps, which have increased in the GCC states, with Dubai being the worst affected.”
Fitch said that it expects Dubai market rents to continue to decline for the next 12 to 18 months, while a weak residential, office and retail environment has caused developers to reduce rents to prevent tenant defaults.
Double Dip? - I didn't know we had got out of the 1st Dip yet.......
Do you think American/European/Asian Economies would be Interested in throwing money in Dubai when their own economy Outlook looks Shaky. Dubai Economy Would Recover only when World Leading Economies are sure that Their Economies are back on Growth Track.
There is no double dip in a free fall, the Dubai real estate market will remain in free fall until it hits rock bottom unless you listen and act on the advice you have been given by current property owners and those that have already "invested" in your real estate market. Ignoring them is making the situation worse than it needs to be, deal with the current issues and if you are lucky you might slow the free fall.
A VERY REALISTIC & STRONG COMMENT BY Bob McNob, This MARKET Will NEVER EVER Come back on it's "Feet", Until & Unless "YOU" START Listening to "INVESTORS" WHO have 'Invested'. Start Giving Them decision making "AUTHORITY" about their own commuinty, TRUST ME, People will "START TRUSTING" Dubai 'ONCE AGAIN'
As far as RERA, DLD and developers continue to deny the market issues fundamentals there will be no recovery. The solutions are primarly in making the people who already bought believe the basics are right. They are not for the moment. The high cost for utilities is the other issue to solve to convince investors to come back. Dr Al Mulla interview explains what ent wrong in DIFC. It is the same problem accross UAE economy. They start with good ideas and good projects but then implement the wrong concept and just upset everybody. People lost trust in the system and threfore will not come back as far as the actual economic players start sending positive signals to their contacts and business partners. Dubai developers and responsible authorities are the ones that can make the situation change but have failed so far.
'Spin' will not work against the full force of market fundamentals. This is the beginning of a very hard lesson for the region. Let's hope that someone is listening.
All these disaffected 'investors' talking about transparency and how to make the market come back are grasping at straws. There was no transparency or protection back when you bought, but it never bothered you then. The boom was driven by immigration in construction. Sadly many investors failed to figure out that all these construction jobs might create demand in the short-term but were going to result in a huge increase in the supply of property in the medium term.
There is a ray of hope for Dubai...Abudhabi and Dubai can come to an agreement about the federal laws regarding freehold, investor rights, ease of visa regualtions for investors etc. Federal govt should open up their eyes to see and understand that if Dubai continue falling it would be detrimental to UAE as a whole. The whole world except a few pockets like Brazil, India, Indonesia etc is shaking- UAE..Better don't waste your opportunities!
Many people have lost money due to lack of legal frame works, which could have been easily managged. All builders and major contractors must have been required to be bonded by an insurance company (who can verify if a developers and/or contractors can fulfill their commitments, then if find them competent they charge them a percentage and insure their work, and if they don't find them competent, then they won't insure them and they remain unbounded), which is how is done in all major countries. Instead Dubai relied on untested escrow accounts, which not only failed miserably, but also, gave a false sense of security to market and exasperated the problems. Releasing giga projects one after another, without making any consideration to the demand was another factor in obvious long term failure. No after all these issues the legal system is completely has failed to resolve the issues. The visa rule change has not helped the matter. Still some DMCC with no reason has made it almost impossible to setup any business in JLT, which has caused most of JLT towers sit empty, so event the silver lining of a depression, which is cheap office rent and business setup is no materialized. How can any body trust to invest anything in this kind of environment? Most people I know are just trying to recover as much as of their investment as they can an run and never look back. Once trust is lost it is no easy to earn it back.
The arts have taken a major hit - especially in the hospitality market. Orders for mural projects to enhance the hotel interiors of Dubai/UAE region - have been noticably slower for artists such as myself. My strategy is to fall back on regular interior painting ( needed regardless of economy) and to build up a stockplie of quality oil paintings on canvas as a future exhibit resource. Current developers in Dubai out to zero in on existing structures and mitigate the half-finished/un occupied housing/office space with ways to have a finished look for visitors and remaining residents. Empty store fronts look bad - look to your art community to fill them with gallery/ exhibition work/ graphics and other means to fill them. Keep your shoppers happy.