Has The Dubai Property Market Bottomed?
Wednesday, February 24, 2010

The head of one of Dubai's largest property companies believes that the crisis in Dubai's sliding real estate market is largely over and that prices will decline no further, although a recovery in the city's market is not expected to take hold until next year.

"Dubai has reached a bottom phase," Markus Giebel, chief executuve of Deyaar Development Co., Dubai's second largest listed property developer, told reporters on Monday. While Geibel belives that relatively small price fluctuations may be possible in the months ahead, he said that he was "very certain" that prices would not plunge at the rates seen last year as the recent building frenzy contributed to an over-supply in residential and office properties.

Property prices in the once-booming emirate have shed about 50% since the market hit a peak in late 2008. According to a recent report from real estate advisory Firm Jones Lang LaSalle, Dubai's commercial property market has been forced to cut back rental prices significantly as vacancies increase. Property costs in Dubai declined in Q2 2009 averaged 25% after a 45% decline in Q1 2009.

A further decline in average rents is likely, due to increasing levels of new supply. By the end of 2011, 25 million square feet of additional office space is forecast to enter the market which will increase the vacancy rate and place further downward pressure on average rental rates. In Q2 2009, the vacancy rate increased to around 25% in the face of more than 2m square feet of additional space entering the market in a period of subdued leasing demand.

Confidence among international investors was shaken again after Dubai World, the city-state's real estate vehicle, announced a debt moratorium for at least six months in November last year. At the time, the total debt of Dubai World amounted to USD59bn, and it is was unable to finance one small short-term component of that, falling due in December. The news however, sent shockwaves across the world's stock markets, which tumbled as a result. But despite Giebel's bullish words, it is likley to be some time before confidence is fully restored in Dubai's debt-laden economy.

Last week, Deyaar reported a net profit of just AED30m (USD8m) for the 12 months ending December 31, 2009, a decline of 95% compared to AED654.7m in 2008. The company said that it is continuiong to focus on its "unique consolidation strategy," which has led to a "reduced level of defaults and a higher paid-up value for each of the company’s sold and consolidated units."

“In the face of unprecedented threats to the stability of the global financial system, the worldwide real estate sector witnessed a range of significant challenges in 2009,” said Giebel in announcing the results. “Despite such volatile conditions, Deyaar successfully handed over eight projects last year, including an AED 363 million project in Lebanon."

With Dubai's property market still very much in the doldrums, Giebel said that Deyaar will focus on opportunities in regional markets.

“In 2010, Deyaar will continue to focus on the completion of the consolidation of its projects and timely collections of its receivables at home in the UAE, while simultaneously identifying strategic expansion opportunities overseas, including potential future opportunities in regional markets such as Lebanon and Saudi Arabia,” he said.