The owner of a five-bedroom penthouse overlooking Dubai’s Palm Jumeirah is looking to sell. And like many others leaving the emirate’s struggling economy, he is willing to offload his property at a deep discount.
“The client is willing to let it go for Dh7m ($1.9m),” said a broker asked to find a buyer for the distressed property. Prices for such luxury duplexes reached Dh6m to Dh17m during the market peak in 2014.
But demand has plummeted as Dubai’s services- and tourism-oriented economy suffered the double blow of the oil price collapse in 2014 — just as the supply of apartments, offices and hotels surged — and escalating geopolitical tension.
Turmoil across the sector, from plunging prices to late-paying developers pressuring cash-strappedcontractors, has prompted Dubai’s authorities to act to get a grip on a market that has an outsized impact on sentiment. As well as forming a committee to balance supply and demand, the government has turned to two of its most senior officials to take over troubled state-owned companies.
Mohammed al-Shaibani, head of Dubai’s state holding company, last week took over the chairmanship of Nakheel, the Palm’s developer. His appointment follows that in December of Sheikh Ahmed bin Saeed Al Maktoum. The head of Emirates airline replaced Abdullah al-Habbai as chairman of two companies with development units owned by the emirate’s ruler, Sheikh Mohammed bin Rashid al-Maktoum.
Government-owned Nakheel was at the heart of Dubai’s debt crisis a decade ago, receiving a cash injection when Abu Dhabi stepped in to prevent a sovereign default with a $10bn bailout loan, building on a $10bn support package from the United Arab Emirates’ central bank.
The Palm, once one of the most prestigious addresses in Dubai, has fallen on to hard times. Some buildings are selling at a discount to the cost of construction, making the man-made island one of the worst-performing markets in the Gulf’s commercial capital.
With no direct beach access and annual service and cooling charges of Dh200,000, the penthouses are out of favour, said the broker, adding: “It’s hard to sell these now.”
Residents complain of onerous security at the beach, where guards check to see whether users have paid their service fees to secure access. Developers say that Nakheel routinely slaps dubious penalties on them to boost cash flow.
“Real estate is such a disaster,” said one banker who bought his Palm residence in 2013 and has since seen its value slump 35 per cent. “My retirement got delayed by a decade.”
The Palm is the highest-profile victim of the property decline. Residential and commercial prices fell another 13 to 15 per cent across Dubai last year, according to real estate services company Asteco, with apartment and villa rental rates down 11 and 10 per cent, respectively.
S&P Global Ratings, which says these data show an overall decline in valuations at almost 40 per cent since their 2014 peak, fears prices are approaching the trough of 2010 and upcoming supply, while declining, is expected to pile further pressure on prices
Developers are offering buyers incentives such as long-term payment plans to sustain demand, despite the jeopardy of shifting the burden on to their balance sheets. “We don’t foresee a recovery in the near term due to the current supply-demand imbalance,” said Sapna Jagtiani, an associate director of corporate ratings at S&P in Dubai.
Dubai’s hosting of the Expo 2020 world fair will ease pressures on hotels and retailers but is “unlikely to materially improve long-term conditions in the real estate sector”, added Ms Jagtiani.
About a fifth of transactions involve overseas purchasers.
Ali Sajwani, general manager of operations at private sector developer Damac, sees hope in the fact that companies such as his, as well as state-owned developers, are curbing supply. “Prices are at the bottom and over the next 18 months we will see stabilisation. New launches will play a big role,” he said.
Yet Afghan-owned Azizi Developments, which is focused on the mid-market,shows no signs of slowing down. Azizi will this year complete 15 buildings, with a “substantial chunk” of its 12,000 units expected to befinished this year. “Delivering the 12,000 units by 2023 is our priority, after which we have another 100-plus projects in planning,” said chief executive Farhad Azizi.
Dubai, which still has debts equivalent to 110 per cent of gross domestic product, is redoubling efforts to revive the stagnant economy, including an increase in public spending this year.
Some in government argue that the slump in property prices is helping to restore the expensive emirate’s competitiveness as rents decline.
Others speculate that Dubai could yet play its “last card” by opening casinos, balancing the Islamic backlash with the fillip to a hospitality sector struggling with declining tourist spend.
Most businessmen, however, are arguing for consistent delivery of basic reforms. They describe recent changes aiming to boost confidence — such as longer-term visas and relaxing restrictions on foreign business ownership — as piecemeal efforts that have come too late.
Many are calling for more permanent residency to encourage expatriate investors to retain more earnings locally. Smaller companies worry about onerous government fees while businesses in different sectors complain about late payments.
“I would rather have my staff pay more for rent in a thriving economy than be able to afford more staff because of a downturn,” said one owner of a professional services company.