Features editor Shikha Mishra takes a look at what effect the credit crisis is having on the property sector in the region.
A housewife, Kam Rajnani, has been living in Dubai with her property consultant husband for the past two years and the couple have been dabbling in real estate ever since.
So obviously, visiting the biggest real estate show in the Middle East - Cityscape 2008 - was a priority for her. But, she left the exhibition disappointed.
There are phenomenal projects being announced, but I don't see anyone buying. I bought some property two years back in Dubailand and though on paper the value has gone up, I have no buyers interested in taking it off my hands," she says.
Even though projects worth almost US $200 billion (AED7.34 billion)were unveiled and about 100,000 people visited the Cityscape exhibition, there was a cautious approach to the real estate market as opposed to the gung-ho optimism of a few years ago.
The Market Real Estate 2008 report published by Oxford Business Group says forecasts of potential price declines have become a feature of the Dubai market as the release of new units escalate. Some reports have now concluded that the market will experience a 10% to 15% decline in rent and sales prices by the end of 2009.
In 2006 EFG-Hermes forecast that property values would decline by 25% to 30% by 2010. In August, a Reuters survey of senior analysts concluded that prices would fall 15% from the end of 2009. Morgan Stanley suggests that property values will fall by 10% between 2008 and 2010.
Though most research houses predict a softening in the market in the future, the current situation remains difficult, and the process of finding a roof over one's head is an arduous one in Dubai.
Rentals in Dubai continue to climb to levels most people can't put together even if they sold their vital organs, and investing in a property is beyond the reach of ordinary professionals.
So will the theory of "what goes up must come down" apply to Dubai's property market as well?
Most experts are reluctant to gaze into the crystal ball and predict what will happen in the construction and property sector, but they conclude that the global economic crisis will have an effect on Dubai.
"Of course the Dubai market is being affected by the worldwide banking problems and liquidity issues and there is declining confidence, which is a major issue. Most people's experience is that there has been a steady increase in property values which was more marked at the beginning of this year," says Kate Godfrey, senior consultant for Oxford Business Group.
Godfrey says that over the last month, values have declined between .5% to 3%, and these figures are a reflection that there is not much activity in the market, as most people are delaying buying or selling.
"Our current report focuses on supply and demand and the key issue for most people is the under supply. Among the projects anticipated to be completed this year there is 44% delay ratio, and only the rest of the projects will be delivered this year, so we expect this under supply to continue for some time.
The rental market has been strong with the number of people moving to Dubai at the moment, especially with the government taking action against multi-tenants living. If there is any decline in capital values, I think it will be very healthy," she says.
But Dubai is not immune to the effects of the global financial crisis.
"There is a tremendous amount of liquidity in the Middle East, which is most important in times of constriction in the capital market," says Nicholas Bashkiroff, chief development officer for Ruwaad.
"Real estate is a cycle anyway. What we are seeing now is a bit of an aberration given the nature of the global markets. But there will be opportunities created as a result of that," says Bashkiroff.Bashkiroff feels that investors will begin diversifying their investments and look toward putting their money in emerging and stable markets.
"Developers will look into the projects they are undertaking and focus on their USP. When things start to constrict, as will inevitably happen, apart from a market adjustment, the companies that will survive will be the ones with a quality-based product which they operate efficiently, and which have a history of success.
There is no benchmark anywhere in the world of a market growing so quickly without any adjustments. At some point there has to be some consolidation," says Bashkiroff.
There are those like Mehdi Amjad, executive chairman of Omniyat, who despite saying that there is a "credit crunch on a worldwide basis which will affect the marketplace," strongly believe in the Dubai dream.
"I disagree with the predictions that the market will crash. The fundamentals of Dubai are very strong. The key element to understand here is that the economy, the liquidity and the numbers are very strong in the Middle East compared to the rest of the world.
The dependency on the banks financing versus the shareholders equity in the market is by far greater than the European market. I don't see a big crash or correction in the marketplace, but a more steady growth which is always good for sustainability," he says.
Most signs point towards the Dubai property market stabilising in the future with more realistic prices.
"The prices may not rise as rapidly as they did earlier, but that was not healthy to begin with. The high growths we saw of 50% were not sustainable," says Amjad.
The effects of the global financial crisis are being felt at all levels with reassuring statements being issued by top government officers in the UAE. ""The UAE economy and banking system are strong and sound," said the President His Highness Shaikh Khalifa Bin Zayed Al Nahyan.
In response to the president's statement, Nasser Bin Hassan Al Shaikh, director-general of the Dubai Department of Finance said: "At a time when the world is facing unprecedented challenges to the global economic order, the leadership of this country continues to demonstrate vision and foresight in assuring the stability of the nation.
In a statement issued by His Highness, the president provides reassurance to the people of the UAE that our economy is supported by a healthy and robust national banking system.
Just as important, the statement released today by His Highness, the president also sends a clear signal to the international community that, despite current global challenges, the UAE remains a pillar of economic stability."For all the latest construction 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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