By Sinead Cruise, Iain Withers and Hadeel Al Sayegh
LONDON/DUBAI, January 26 (Reuters) – As cranes dot Dubai’s skyline and ultra-luxury homes change hands at record prices, signs are emerging that the city-state’s property boom is on fire.
Developers, investors and brokers are privately wondering how quickly one of last year’s hottest property trends could turn around and whether a painful correction similar to the slump that rocked the emirate in 2008 can be ruled out.
Since then, Dubai has pursued economic restart anchored on what it hopes is sustainable growth, including a 10-year plan known as D33, to double production and become one of the world’s top four financial centers.
However, the real estate industry remains a key barometer of its success, accounting for 8.9% of the economy.
“Dubai’s vulnerability to a correction lies in its reliance on foreign capital, particularly from China and Russia,” Ronan Hannan, head of consultancy Proven Partners, told Reuters.
Massive infrastructure spending, generous income tax policies and an “open door” approach to immigration strengthened after the pandemic have attracted thousands of foreigners.
Russians were the top non-resident home buyers in the first quarter of 2023 but fell to third place by the end of the year, according to Betterhomes research, with buyers from India and the UK accounting for most of the transactions during the twelve months. .
There has also been a notable increase in buyers from Egypt, Lebanon, Pakistan and Turkey, the firm said, underscoring the city’s dual role as a safe haven as well as a magnet for the ultra-rich.
Although Russian and Chinese inflows are slowly declining, increased interest from Indian investors could keep any downturn swift and shallow, said Hakim Abdeljaouad, Managing Director in Kroll’s Valuation Advisory Services practice.
COOLING PRICES
A record 431 Dubai homes were sold for more than $10 million in 2023, almost doubling the tally from the previous year and making it the largest such market in the world, according to research by property agency Knight Frank shared with Reuters.
House prices in Dubai’s three “prime” residential areas – Palm Jumeirah, Emirates Hills and Jumeirah Bay Island – are however expected to rise by a more modest 5% in 2024 after adding 15.9% in the year to September 2023, according to Knight Frank.
House prices outside those luxury areas jumped 19% in the year to September and are forecast to grow 3.5% in 2024.
“My concern is the state of the global economy,” former Dubai finance chief Nasser al-Shaikh told Reuters. “We are open to the world and whatever happens in other places affects us.”
But he added that as long as both national and local governments carry out wider development plans, future housing supply should be absorbed by new residents.
Others sounded less optimistic with a senior source at a major Dubai developer saying house prices could fall by 10-15% over the next few years.
Another source close to the situation said at least one large local landlord is looking to sell multiple hotel properties, including one on luxury hotspot Palm Jumeirah to de-risk its portfolio.
“Supply will exceed demand to a certain extent within the next two to three years especially in the luxury segments, so this will naturally cause a form of slowdown,” Mireille Azzam, JLL’s head of strategy consulting for the Middle East and Africa, told Reuters, adding that some residents are waiting to see if prices have become more affordable before moving.
NEWFOUND RESILIENCE?
Memories of Dubai’s 2008 real estate crash, which ultimately led to a $20 billion bailout of the emirate’s oil-rich neighbor Abu Dhabi, continue to loom large, but analysts say lessons have been learned and the risk of contagion from any downturn seems lower.
“The financial institutions and major developers in the region have learned from past crises and are well prepared,” said Abdeljaouad de Kroll. “The market focus is shifting more towards prime housing and infrastructure.”
Economic indicators remain strong, with S&P Global December purchasing manager survey recording its highest reading in 16 months, reflecting Dubai’s non-oil businesses firmly in expansion mode.
Meanwhile, Dubai is expected to deliver just 13,000 homes annually over the next six years, well below the 30,000 run rate over the past 15 years, suggesting a shortage that could support demand, said Knight Frank partner and head of research for the Middle East. and North Africa Faisal Durrani.
The exposure of the 10 largest UAE banks to real estate, which analysts estimated at more than 30% during the 2008-2009 financial crisis, has fallen for nine straight quarters, according to consultancy Alvarez & Marsal, falling to 16.2% in the third quarter . from 2023 to 22.3% at the end of 2020.
Although banks and developers have reduced their risks, industry sources warn that thousands of other industry players are more vulnerable to an extended slowdown.
These include Dubai’s brokerages, whose number has grown to around 4,000 from 1,200 in 2020, noted Betterhomes chief executive Richard Waind.
The biggest threats to Dubai’s real estate sector stem from unexpected spikes in inflation, unpredictable global interest rate policy and regional contagion from the Israel-Hamas war, eight sources told Reuters. The potential impact of disruption on vital shipping lanes in the Red Sea is so far unclear.
But geopolitical turmoil such as Russia’s invasion of Ukraine has boosted the emirate in recent years, and some speculate that could continue.
“Dubai will always benefit whenever there is chaos,” the program source said.
(Additional reporting by Rachna Uppal; Editing by Elisa Martinuzzi, Kirsten Donovan)
((Iain.Withers@thomsonreuters.com;))
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