UAE Real Estate Sector – Still Negative Outlook

A well-respected Kuwait-based investment bank has said that the outlook for the UAE real estate market remains negative.

Kuwait Financial Centre, also known as Markaz, said in a report that oversupply in the property market would likely constrain demand and impede economic growth. Markaz said it expects the UAE’s real gross domestic product to grow this year by 0.7 per cent, down from 5.8 per cent in 2008.

“The persistent uncertainties in demand expectations, especially in Dubai, would continue to haunt the real estate sector."

“Financing too remains restrictive with banks hesitating to lend to developers, and we expect it to remain so. Though some banks have offered renewed mortgage lending, the extent of takers for such loans is questionable given the huge uncertainty in demand prospects, especially in Dubai."

The outlook for the GCC real estate sector also remains negative, due to weak demand and abundant supply, and much like all other investors, lack of transparency in the UAE presents a challenge as far as making predictions go.

Dubai's property downturn not over yet

"The low economic growth and the current state of affairs together with the heavy reliance on expat population hazes the picture of the current estimate of demand contraction. Although 31% of the RE&C projects got on hold/cancelled, UAE still accounts for c.41% of the existing  RE&C projects in GCC and thus vulnerable to further cancellations given the extent of past oversupply. The information about financial conditions in UAE is available only up to Q3-08 and hence we cannot judge the current situation. However, given the strength of other factors, we can expect
some more projects to be put on hold/cancelled in the future. "

Cancellations/holds to continue in UAE mainly as a result of past oversupply and the huge supply pipeline and Markaz suggests the time to look at the bottom of the down turn is when project cancellations stop.

The reluctance of banks to lend to the real estate and construction sector due to the lack of confidence in the industry has removed the necessary lubricants and pushed the region into deeper negative growth.

“Vibrant economic growth and liquidity conditions in the past have resulted in an oversupply situation with the significant correction in demand expectations of late albeit with pockets of undersupply."

According to their report, the UAE accounted for 91% of all real estate and construction projects that had been either put on hold or cancelled in GCC countries. “A significant contraction in activity due to cancellation or delaying of the projects should be painful for the sector, and the pain would as well be felt in the overall economy depending on the extent of the sector’s contribution to the economy."

This report is probably the most honest and realistic report we have seen lately, and I must admit to detecting a note of panic in the reports arriving in my inbox lately. The shrill insistence that we have reached the bottom of the downturn  and "now is the time to invest in real estate in Dubai !" is beginning to grate.

Markaz