Problems with Dubai Property sector

Dubai´s property market which already saw a plunge of more than 40 percent in the first quarter of 2009 suffered another blow after a respected ratings agency forecasted that the country is in debts that it may have trouble repaying.

According to a report by Property Frontiers, Standard & Poor´s Ratings Service (S&P) downgraded ratings for three government backed entities, namely, port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, putting the trio on credit watch since April.

“The rating actions reflect Standard & Poor’s reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to ensure the timely repayment of their financial obligations,” the agency told Property Frontiers.

S&P said the reappraisal also was the result of “increased uncertainty in regards to the government’s willingness to provide such support” to Nakheel, the property developer who built Dubai’s manmade islands.
On a separate report by Property Wire, the downturn in the property market in Dubai has resulted in about 400 people losing their jobs at major developer, Nakheel.

Property Wire reported that Nakheel, whose ambitious projects include the Palm Islands, has made the latest redundancies on top of 500 that were carried out in December.

´Nakheel continues to re-adjust its current business objectives to match supply and demand in the most effective way,´ a company spokesman told Property Wire.

Developers, who were mostly reliant on off-plan sales to finance the construction of their projects, have struggled to collect payments, leading to rising defaults, while payments to suppliers have been delayed.

High profile development projects have also been delayed and it is estimated that currently over £335 billion of projects have been halted or are on hold.

Dubai´s real estate market is the second worst performing housing market according to a global housing price research, coming in 44th in ranking – second only to Latvia.

S&P said the downgrades “reflect our view of the stand-alone credit profiles of the entities, which in certain instances, we consider to have deteriorated.”

Dubai Property Delays

Dubai: Property prices have quadrupled in Gulf Arab countries due to surging demand for housing and office space created by economic growth and windfall revenues from a 5-fold increase in oil prices since 2002. Dubai, the Gulf commercial hub, has already set an annual rent cap of 5% for 2008, tighter than last year's 7% cap and the 15% ceiling of 2006.

Jones Lang LaSalle expects a supply surplus in Dubai between 2010 and 2012. This adjusts the global real estate investor's previous forecast that supply would surpass demand between 2007 and 2009.

Real estate prices and rents in the Gulf Arab region, especially Dubai are most likely to rise by up to 20% in 2008, due to higher labor and construction costs and delivery delays, says market analyst, Jones Lang LaSalle.

Blair Hagkull, Regional Managing Director, Jones Lang LaSalle in Dubai, said, "With the delays in delivery, the specter of huge supply continues to be delayed and you see greater demand... there will also be an increase in labor and construction costs and land prices".

Of 57,000 residential units expected in Dubai in 2007, less than 20% were delivered by September, Cairo-based investment bank EFG-Hermes said in a report that month. It said then it expected a rise of 5-10% in property prices in 2008.