Record losses for Dubai companies in light of falling real estate deals by 41%

Official data released by the Dubai Land and Property Department show that real estate deals in the emirate fell 41% on a monthly basis in January.

The total value of Dubai real estate purchase and mortgage deals was 16.7 billion dirhams ($4.55 billion) in January, compared to 28.3 billion dirhams (7.7 billion dollars) in December.

International institutions are unlikely to see the real estate market in Dubai grow soon, despite hosting the World Expo 2020 in October, which organizers expect to see about 11 million visitors.

Standard & Poor’s, a global credit rating agency, said in a report last November that the fair was unlikely to improve the “harsh” conditions in the emirate’s real estate market.

Dubai house prices have tumbled by more than a quarter since mid-2014, which was reflected in the results of the major companies ’business, announcing losses and a significant decline in profits by the end of last year 2019.

A report issued by Esteco, one of the largest real estate services companies in the region, expected that the real estate market in Dubai would witness the addition of about 50 thousand new units during 2020, in a fundamentally overburdened market, which would eventually lead to a decline in ownership and rental prices, indicating That last year saw the delivery of about 31 thousand units.

According to the report, the new supply of real estate in the city will continue to grow until 2021, despite calls from industry leaders and businessmen to stop new real estate projects, in order to restore the balance between supply and demand in the market.

The head of Damac Properties, Hussein Sajwani, had warned in press statements last October that the slowdown in the real estate sector might extend to the banking sector, stressing the need to stop new projects until the market regained its balance.

DAMAC incurred a loss in its financial results during 2019, at a value of 36.87 million dirhams, compared to a net profit of 1.15 billion dirhams in 2018.

The president of the company said, in a disclosure to the Dubai Financial Market, last week, that the company launched fewer real estate projects in 2019, in line with the market situation that is witnessing an increase in supply and a decline in demand.

The prices of apartments and villas fell during the past year by between 13 and 15 per cent, according to the Esteco Foundation, expecting old property prices to decline this year as new real estate prices decline, and provide more facilities by banks and real estate developers to attract new customers and support sales .

Losses were not limited to DAMAC, but many major companies were involved, as Etihad Real Estate Company incurred losses of 218.8 million dirhams in 2019, compared to profits of 62.3 million dirhams during the previous year.

In an effort to tackle the slump in the real estate market, the Dubai government last September set up a committee on real estate planning, but indicators still show a decline in the market.

The Emirate of Dubai is facing a comprehensive crisis, the most prominent of which is the failure of real estate sales, 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 scheduled to be completed this year, adding that it will be the largest number of new units since 2008, although it is not expected that they will all be completed in the end.

“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.”