Tuesday, 17 November 2009

What is happening in Dubai Property Sector?

With Dubai property sector undergoing a transitional phase, companies are reviewing their project strategies, and developers are more cautious with their future investments on projects, as several mega-developments are now being reviewed.

For instance, Nakheel has announced that parts of the Dh.350bn Jumeirah Garden City, the Trump International Hotel, the Tower on Palm Jumeirah, and the kilometer-high tower will be put on hold.

Even work on 'The Universe' will be restricted to preliminary studies, Nakheel said. Decrease in liquidity and financing has led to delay in progress of such projects, resulting in these projects bearing the brunt of financial turmoil. The mega-projects that had earlier brought about a property boom in Dubai, have now been put on hold.

Limitless too, revealed that it is reviewing construction schedule of Arabian Canal. The Head of Dubai's RERA, Marwan bin Galita, said that developers need to review their projects which are yet to be launched for sale. Recession is a very crucial phase, and RERA had been urging developers to do this about a year back, Galita said.

The Chairman of Crisis Management Committee, Mohammad al Abbar, last week said that it would pull back on its building spree due to the current financial crisis. Apart from backing out of its projects, Nakheel has also laid off 500 employees, constituting 15 percent of the company's work-force. All the 500 employees were offered redundancy package, including outplacement support services to assist them during this transitional phase.

Better Homes, Damac and Omniyat too, have followed suit, with Better Homes axing 50 jobs, Omniyat with 69 jobs, and Damac laid off 200 jobs, with the drop in demand for properties.
Meeras however, said that it does not have plans for lay-offs at the moment.

According to analysts, about 819 employees have lost their jobs in the Dubai real estate sector till date, with more to follow. However, the Head of Research and Consultancy at Cluttons, Matthew Green, said that these happenings are not restricted to the realty sector alone, and few other major corporate too, have announced staff reductions.

In the meanwhile, the time is now appropriate for small developers to join hands to bring confidence back into the market, say analysts.

A member of Financial Crisis Committee said that Dubai has been witnessing plenty of defaults on high-end properties with worsening financial conditions, and there are possibilities of merger among smaller developers. Even Head of RERA, Marwan bin Galita, agrees that merger between small companies would bring in more confidence, as good mergers in any sector adds more value to the sector.

The developers, Union Properties and Deyaar, although denied talks about any plans of merger, they were unable to comment on whether the government would order their merger.

Secondary prices in Dubai and Abu Dhabi fell 4 to 5 percent in October from the previous month, while the villa prices of Dubai dropped by 19 percent, under strict lending conditions, according to a recent HSBC statement.

The "off-plan" market is not doing too well, due to market speculations. Few of the banks have stopped financing, while few developers are said to be demanding exorbitant prices. However, the prices of "affordable" off-plan properties may pick-up during second quarter of 2009, if the banks improve on their lending, Bin Galita said.

RERA is likely to implement a new law on registration of off-plan properties next week.

On the whole, Dubai real estate sector has met with stringent mortgage lending measures, liquidity crunch, and real estate slowdown during recent months. The indications of property boom in Dubai, have atleast, temporarily halted, and developers are seen scaling back on their projects, while jobs are cut and property prices have plummeted.