Warnings of an imminent economic catastrophe are mounting in the United Arab Emirates, which is paying the price of its regime’s policies of waging wars and being involved in foreign interference that has inflicted record losses and prompted an unprecedented economic crisis.
The UAE’s economic crisis is particularly pronounced in Dubai, where a major construction company has warned that the emirate needs to halt all construction of new homes for a year or two to avoid an economic catastrophe caused by oversupply.
“We are now at a crossroads, either we can solve this problem and we can thrive here, or we will see a disaster,” Hussein Sajwani, president of Damac Properties, told Bloomberg in an interview.
DAMAC’s chairman was not the first executive to call for building restrictions in a market that is on a downward trend, after peaking five years ago.
The current recession, contrary to all the promising prospects for a recovery, came after house prices fell by about 30%. About 30,000 new homes are scheduled to be built this year, double the demand in the Gulf city, according to JLL Properties.
Sajwani said DAMAC had significantly reduced its new deals over the past two years and would focus on selling its existing properties. However, the real estate developer will complete the construction of 4,000 homes this year and another 6,000 homes in 2020.
“All we need is just to freeze the supply. We have to cut it for a year, maybe 18 months, maybe two years,” he said.
Sajwani warned that ignoring oversupply could be a hassle for city banks, as falling home values could inevitably lead to growing bad loans and increased judgments against default, hurting profitability. Dubai recently set up a committee to end supply levels and ensure private developers work in a fair environment.
“The domino effect is ridiculous because Dubai’s economy is heavily dependent on real estate,” said Damac, referring to rival Emaar Properties as the main reason for the oversupply.
He added that the majority of other prominent developers, including Meraas and Nakheel, have halted or reduced new construction by 80%, while Emaar continues to “flood” the market with real estate.
DAMAC’s share price has fallen 40% this year and the company will not make a profit this year due to lower profitability. Sajwani said he would prefer to keep cash in the company to meet financial obligations.
Emaar’s website features a long list of recent developments, including the third Arabian Ranches, Dubai Creek and Emaar South. The developer has also joined the state-owned conglomerate, with the government of Dubai owning around 29% of Emaar.
Meanwhile, Bloomberg reported that ADCB plans to exit its banking operations in Qatar and Kuwait and focus on the local market.
This comes at a time when UAE banks are facing financial difficulties due to the real estate crisis in Dubai, where many real estate companies failed to pay the mortgage debt.
The Central Bank of the UAE estimates the size of mortgages, which are carried by banks’ portfolios, at about 20% of total loans.
According to Bloomberg, ADCB informed Qatar and Kuwait of its intention to close its banking operations to focus on the local market.
The move follows the bank’s sale of its banking operations in India. In May, the bank implemented merger operations with Union National Bank and Al Hilal Bank as part of a plan to avoid financial difficulties.
The Central Bank of the UAE last week proposed new regulatory measures to protect banks from excessive exposure to the real estate sector and encourage them to hold diverse assets.
International rating agencies, including Standard & Poor’s, have recently warned of a financial crisis if Dubai’s real estate sector continues to weaken and real estate and contracting companies fail to meet bank loans.
The UAE is suffering from a sharp slowdown in the property market due to oversupply and weak investment demand amid low oil prices.