Dubai real estate seen in doldrums until 2016

Moody's says oversupply issues likely to delay price recovery for another five years
Dubai real estate seen in doldrums until 2016
By Reuters
Mon 24 Oct 2011 07:19 PM

Dubai's once-booming property market can expect more pain with oversupply likely to delay a price recovery in the Gulf emirate until 2016, ratings agency Moody's said on Monday.

House prices in Dubai soared after the emirate - which overstretched itself building extravagant real estate projects - opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments.

From start-2007 to mid-2008, prices rallied almost 80 percent, Morgan Stanley estimates showed.

But the bubble burst when global economic woes and a debt crisis at home led to billions of dollars worth of projects being put on hold or cancelled while house prices plummeted some 60 percent from their peaks.

"When you look at Dubai, yes the market is oversupplied on the residential side," Martin Kohlhase, senior analyst, EMEA Corporate Finance at Moody's, told the Reuters Middle East Investment Summit in Dubai.

"We don't see recovery over the next five years. New construction, new projects are unlikely to happen and the same would hold true for the commercial market," he added.

Dubai's housing market will plummet another 10 percent before it stabilises, a Reuters poll showed earlier on Monday, adding the market is oversupplied by about 25 percent.

Brokerage AlembicHC said last month it would take at least three years for supply and demand to reach equilibrium, while Rasmala Investment Bank's Saud Masud said it would be 2020 when property prices get back to 2008 levels assuming five or six years of recovery.

The situation in Abu Dhabi, the capital of the UAE, is no better with as many as 11,000 homes expected to flood the property market in the next quarter, a report by property consultants Jones Lang laSalle said this month.

House prices in Abu Dhabi are expected to fall another 14 percent from here, or 60 percent from their peak, Reuters property poll showed, while rents are expected to slump 14 percent this year and 10 percent next year.

In June this year Moody's downgraded Abu Dhabi's largest property developer Aldar Properties credit ratings to B2 from Ba3 with outlook changed to negative, citing uncertainty over future government support for the struggling developer.

"There is a higher chance of revisiting the credit rating over a 12- to 18-month period with negative pressure," Moody's Kohlhase said at the summit.

While the outlook for Dubai's property sector remains gloomy, the emirate has been seen as a safe haven during turmoil that has gripped the Arab world and toppled leaders in Tunisia, Egypt and Libya.

The Gulf emirate's retail sector has benefited from the unrest, Iyad Malas, chief executive of mall developer Majed Al Futtaim (MAF) Holding, told the Reuters on Monday.

"Arab spring benefit to Dubai has been evident in the summer because people in the GCC didn't travel elsewhere in the region," he said.

"Mall traffic continues to be very strong. We've seen drops of about 20 percent in sales from top to bottom but since then (the turmoil) we've seen an upturn."

The uprisings cost the most affected countries more than $55bn but the resulting high oil prices have strengthened other producing countries, a report by political risk consultancy Geopolicity showed earlier in October.

Major oil producers such as the United Arab Emirates, Saudi Arabia and Kuwait avoided significant unrest and saw their GDP grow during the turmoil. Oil prices rocketed from around $90 a barrel of Brent crude at the start of the year to just short of $130 in May.

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