CityScape Dubai Faces Harsh Realities

This year’s CityScape in Dubai is forcing the industry to face a few harsh realities. Duding the run up to the exhibition, all the major Dubai property developers pulled out, including Nakheel, Emaar and Limitless, although  Emaar and Nakheel were touted as “Foundation Sponsors,” and the 2009 exhibitor list on CityScape’s website is still empty. The amount of exhibitors is well down and the usual, “XXX Billion Dirham development!” announcements have been somewhat lacking. I don’t think anyone could have swallowed that this year.

The mergers and lawsuits floating around in the background are still casting a shadow of uncertainty over the region. Emaar’s merger with Dubai holdings‘ Sama Dubai, Dubai Properties and Tatweer, is still “with the regulator,” which we take to mean “trying to decide how much shareholders will lose without causing a riot.”

Attendance at Cityscape was extremely poor – unsurprisingly, which meant poor Donald Trump Junior was speaking to an almost empty room when he told Dubai’s developers to “Be realistic,” and start cutting prices.

The road to recovery in Dubai is likely to be a long hard one, with financing still the main issue. Some are estimating that Dubai’s developers are staring at as much as a 50% default rate for those developers who sold at peak prices. With prices having fallen as much as 70% it often makes sense to walk away from a 5% deposit on an off plan property that could take 20 years to recover in price. Tamer Bazzari, CEO of Rasmala Investments said,

Mortgage companies have limited funding resources, while banks have no appetite to increase their exposure. The worst-hit sector in Dubai was in sales of raw land, with most such projects at a standstill. It would take at least two years for new land projects to be launched in Dubai. Unlike a year ago, when 30 buyers chased a seller, today 30 sellers are chasing a buyer. The default rate could be low in cases where the developer managed to get most of the payments from buyers. It can go up to 50 per cent in cases where the developer could get only fraction of the price from investors.

No one is arguing that there will be a fast rebound and the banks are making it clear that there appetite for risk has been severely curtailed ad there will be limited demand for investment property in Dubai for the foreseeable future. There is still the issue of new supply being added to an over-supplied market and prices are likely to remain on a downward spiral for some time, although there are the usual attempts to talk up the market which are sounding increasingly hollow as the gap between supply and demand becomes more and more apparent.