Business | Property
Slowdown in Dubai real estate sector will be shortlived, experts say
The impending slowdown in construction will eventually reduce supply and drive up prices.
- By Cleofe Maceda, Staff Reporter
- Published: 00:01 November 12, 2008
- Image Credit: Gulf News Archive
- Projects that have already broken ground and have existing commitments with financial institutions will continue despite the global financial crisis, say experts.
Dubai: The real estate industry in Dubai is currently at a standstill, as fewer people are buying new properties due to much speculation in the market and the liquidity squeeze that gripped the local banking sector recently, experts said on Tuesday.
In the short term, there will be a "dramatic slowdown" in real estate developments because property developers, including Emaar and Nakheel, will find it difficult to secure new financing.
However, projects that have already broken ground and have existing commitments with financial institutions will continue despite the global financial crisis because the UAE has already injected liquidity into the local banking system.
Short-term slump
Industry sources said the current slump in real estate will not last very long. Although lesser buying has relaxed property prices, the impending slowdown in construction will eventually reduce property supply, which in turn will drive prices back up.
"Today, there is little demand for real estate. There is hardly any trading. Buyers are sitting on the sidelines. Investors or purchasers are very cautious and they are not moving forward because they think prices are going to drop. Then, there's little capital from banks to finance the development of new real estate," said Ali Al Shihabi, founder and chief executive of Rasmala Investments during a networking event with Dubai Property Society.
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"But if you're an investor, now is actually a very good time to buy. Existing projects are going to continue. Large developers will continue to build but at a much reduced level. You still have a solid pipeline of work over the next three years to keep you busy. This relaxation is going to lead to a second bomb in demand in a few years' time because that reduction in supply that's going to be coming will force prices to go up in the next few years," Al Shihabi added.
Ronald Hinchey, resident partner of property consultancy firm Cluttons, attributed the slump in real estate activity to the lack of liquidity in banks and the reduction of loan-to-value ratios.
He said people were finding it difficult to borrow money for property because mortgage providers have lowered their loan-to-value ratios from 80 to 90 per cent down to 50 to 70 per cent.
"The other problem on the side of the lending institutions is that they have committed a lot of their funds forward on properties that are under construction and because of the recent outflow of money from the Middle East after the uncertainty over the dirham possibly depegging from the dollar, there is a liquidity issue," Hinchey told Gulf News.
Al Shihabi noted that Dubai had actually been hit by its own financial crisis this year prior to the collapse of major financial institutions like the Lehman Brothers in the US.
In the first six months of the year, the UAE saw an influx of billions of dollars from global financial institutions after speculation was rife that the dirham would be revalued against the dollar.
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