Dubai: Some projects in Dubai are likely to "physically disappear" in 2009 as the emirate witnesses a flight to quality among investors, industry experts said on Monday.
Developers did not do adequate market research and did not factor in who they were building the projects for. This resulted in a plethora of "very, very silly projects", many of which now face extinction, Christopher Sims, chief operating officer at Gulf Housing Solutions, said.
"This natural culling of the market is a good thing&Some projects will physically disappear. Some were very far-reaching and extremely ambitious. Amateurs are going, professionals are remaining," Sims said.
Before the financial downturn hit Dubai, investors and speculators simply wanted a piece of the Dubai property cake. Now, investors are looking to those projects which are completed and have facilities and have good quality finishes.
"It is not a recession, but a technical correction. The market will move to a flight to quality - the Springs, Jumeirah. People don't want to live in the middle of the desert without infrastructure," Sims added.
Sims was speaking during Middle East Economic Digest (MEED) magazine's mega projects conference. A few developers due to participate and offer project updates were not present at the event.
Nakheel has had to postpone some of its projects such as the kilometre-tall tower and the Trump International Hotel and Tower as developers across Dubai and globally have had to tighten their purse strings.
Sims said his company is currently "looking for acquisitions".
"End prices have come down, there's no doubt about that. The average downturn is about 30 per cent right across the board," Sims said.
Ian Ohan, regional director, head of investment transactions at Jones Lang LaSalle, said that in terms of defaults, projects that haven't yet broken ground are easier to resolve. "Off-plan sales were used, effectively, to finance projects. Off-plan purchasers are now defaulting&this puts the developer in a difficult situation," Ohan said.
A recent Jones Lang LaSalle report said that more than 50 per cent of residential and commercial projects due to come online between 2009 and 2012 are now on hold or cancelled entirely.
Ohan said that a survey done in the Middle East and North Africa region the third quarter of 2008 showed that the issue investors were most concerned about was the level of return.
"Less than 2.5 per cent were interested in an exit strategy and that speaks volumes about the state of the market back at the peak," said Ohan.
Whereas 2009 will continue to be a year of correction, 2010 will be a year of stabilisation before the market recovers in 2011, according to Jones Lang LaSalle.
