Dubai real estate… Excess supply without demand increases its economic crisis
The Emirate of Dubai is facing a comprehensive crisis, the most prominent of which is the failure of the real estate sale, which faces a supply glut in exchange for a severe weakness in medicine, which threatens the collapse of the real estate sector in the Emirates.
Dubai real estate market is suffering particularly from sharp declines in sales and prices, as the real estate market has been witnessing a steady contraction, since mid-2014, due to the lack of interest from foreign investors, and the overall market has fallen by at least a quarter, according to specialized reports.
Analysts have expected that the real estate sector in Dubai will witness a new crisis similar to what happened in 2008, after the city authorities failed to find solutions to meet the oversupply that led to a price drop of more than 25 percent from what it was in 2014.
It is expected, according to Reuters news agency, that Dubai will add the largest number of newly completed homes in more than ten years this year, adding to pressures on a real estate sector that is already suffering from an oversupply.
Dubai, the financial center in the Middle East where the private sector contracted for the first time since 2009 in January, witnessed a slowdown in the real estate market for most of the past decade.
Real estate consultant Knight Frank said that 62,500 housing units are due to be completed this year, adding that it will be the largest number of new units since 2008, although not all of them are expected to be eventually completed.
“In the short and medium term, supply will continue to increase, pressuring prices and rents,” Knight Frank said in a report.
In 2008, 70,855 new housing units were delivered, just before the outbreak of the crisis in Dubai as a result of the collapse of the booming real estate sector and the main contributor to the revenues of the emirate’s government, which does not have a huge oil wealth.
The sale prices of residential units fell by an average of six percent in 2019, and Knight Frank said that the number of new units that were delivered was estimated at 35,171 units, compared to a decrease of 8.6 percent in 2018.
Apartment prices fell an average of 8.2 percent last year, while villa prices fell 7.3 percent and rents fell 8.1 percent. House prices are at least 25 percent lower than in 2014, due to excess supply.
Dubai tried to stop the decline by forming a committee last September to regulate the sector, but it is not clear what steps the committee has taken.
According to data showing that the volume of residential property deals increased in 2019 by 26 percent compared to the previous year, Knight Frank said that “there are early signs of recovery, although prices remain under pressure.”
In Abu Dhabi, home sales prices fell 7.5 percent on average, and 6,582 housing units were delivered in 2019.
Knight Frank added that more than 8,500 housing units are expected to be delivered this year in the oil-rich emirate, the largest size since 2013.
Meanwhile, the UAE real estate company, Damac, incurred a loss in its financial results during 2019, at a value of 36.87 million dirhams ($10 million), marking its first loss since 2010.
The company said in a disclosure to the Dubai Stock Exchange, that its recorded losses came after recording a net profit of 1.15 billion dirhams ($313.3 million) in 2018.
The revenues of the giant company in the real estate industry in the UAE decreased to 4.399 billion dirhams ($1.198 billion) in 2019, down from 6.13 billion dirhams ($1.67 billion) in 2018.
Hussein Sajwani, Chairman of Damac Properties, said in the disclosure that the company launched fewer real estate projects in 2019, in line with the market situation that is witnessing an increase in supply and declining demand.
Sajwani said that reducing the launch of projects also comes, in order to avoid adding new obligations to the company, “and focus our efforts on selling prefabricated and semi-finished facilities.”
And recently, “CNBC Arabia” channel quoted the Chairman of the Board, “Damac”, saying that prices reached the bottom in 2019, and the offer in Dubai is what drove the real estate market to decline.
He added, “the company was expecting an oversupply, which appeared clearly in the company’s data in 2018, which prompted the company to launch one project in 2018 and 2019.”
He pointed out that DAMAC “reduced projects in 2018 and 2019 by 90%.”
And last summer, Savills Real Estate Consulting said that the prices of luxury residential properties in Dubai decreased by 1.9% in the first half of the year, due to excess supply.
Savills said that the prices of the luxury real estate market have fallen 19.8% over the past five years, to $600 per square foot, “due to the high levels of new construction stocks and the global economic uncertainty.”
Meanwhile, financial stocks in the UAE have suffered record losses in the past two days.
In Dubai, the index lost 0.8 percent, after Emaar Properties fell 2 percent and Damac Properties fell 4.6 percent, to reach its lowest level since the start of trading.
The UAE real estate developer transformed to a net loss of 36.9 million dirhams ($ 10.05 million) in 2019, compared to a profit of 1.15 billion dirhams in the previous year. According to Refinitiv’s London financial data, it is the company’s first annual loss since 2010.
However, the index received some support from Emirates Integrated Telecommunications Company (Du), which closed 1.6 percent higher, as the telecommunications company announced an annual profit of 1.73 billion dirhams from 1.75 billion dirhams in the previous year.
