Investors in Dubai’s property sector are demanding higher yields as the oil price drop, weakening economic growth and a strong US dollar soften sentiment towards property deals, industry experts said yesterday.
The rate of growth of property prices in the emirate stabilised in the final quarter of last year and is expected to slow down further this year. But unlike the crash of 2008-09, when prices nearly halved as the financial crisis kicked in, analysts are expecting a softer landing.
“What we have seen in the last year or so is really a kind of active level of investor interest in buying hospitality assets, office buildings, shopping centres, and the vast majority of that money is from GCC countries,” said Alan Robertson, the chief executive of the property advisory Jones Lang LaSalle for Mena at Meed’s Destination Dubai conference.
“The change we have seen is that investors now want a little bit more return for their money than they did six months ago or 12 months ago.
Investors are still there, but they are adopting a slightly more cautious approach and that could lead to a slowdown in transactions if there is a mismatch between seller expectations and buyers’ expectations of price.”
The value of Dubai property deals in 2014 fell 7.6 per cent to Dh218 billion compared with the previous year, reflecting a slowdown in the emirate’s housing market, according to Dubai Land Department data released this month.
“They [investors in Dubai property] are coming to Dubai and they are looking at 9 to 10 per cent dividends or yields and to get that in this market you need to see prices declining,” said Jesse Downs, managing director of the Dubai-based property consultancy Phidar Advisory.
Current oil prices, which have slumped by more than half to near six-year lows since June last year and are trading at less than $50 a barrel, have prompted the IMF to lower its economic growth forecast for the UAE for this year.
The oil price rout will translate into a $300bn loss in revenue for exporting countries in Middle East and North Africa, the IMF said. This decline could impact Dubai’s property market which relies on Gulf-region investment. “In the long term if lower oil prices are still here in two to three years time, then there will be less disposable income, and less investment available from the other GCC oil producing countries. People would generally tighten their purse strings,” said Mr Robertson.
The stronger dollar will also impact Dubai’s property market, which also receives capital inflows from the UK, Europe and Russia. This decline will also lead to change in the hospitality sector in Dubai.
“Tourists still have to go on holiday, but if they are a bit more cost-conscious because of the exchange rate then you could see how they might choose a four-star hotel in Dubai rather than a five-star hotel at this stage,” said Mr Robertson.
Dubai has accumulated debt estimated at around $142bn or about 141 per cent of 2013 GDP based on IMF figures, but it will still need to take on more to finance its future projects, such as Expo 2020 and Mohammed bin Rashid city.
“A lot of the supply that is going to be coming into the market can be absorbed because of population growth. There is of course Expo 2020 coming into play,” said Sajid Siddique, vice president at Mashreq’s investment banking division.
“Regulation is there in terms of central bank regulation and even banks themselves are a lot more prudent in how they structure financing. A lot of the banks are restricted in what they can lend to GREs [government-related entities].
“It’s difficult not to take on debt if you want to grow the economy and grow the Dubai infrastructure. The best you can do is to try to manage it,” he said.
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