Confidence still permeated the property sector at the start of last year, even as the credit crunch in most other markets stalled transactions and caused prices to fall. Developers were gung-ho about the outlook for their market, responding to continuously high demand with even more ambitious projects.
They had every reason to be enthusiastic: property prices surged 78 per cent between the first quarter of 2007 and the same quarter last year, and everybody wanted a slice of the action. At the start of last year, developments that helped put Dubai on the map were being brought to life. Some residents had moved into Nakheel's Palm Jumeirah, the first of the three reclaimed Palm island developments, while the world's tallest tower, the Burj Dubai, rose steadily towards completion.
Success with such unprecedented projects, from skyscrapers surrounded by racing tracks to villas flanked with replicas of the Eiffel Tower, fuelled developers' appetites for more. Nakheel launched yet another island development, The Universe, while the Dubai Government-owned Meraas Development hatched plans for Jumeirah Gardens, a development that is expected to transform Dubai's more humble districts.
Abu Dhabi unveiled plans to invest US$22 billion (Dh80.8bn) in Masdar City, a development planned to rely entirely on solar power and other renewable energy sources. Even after the collapse of the giant US investment bank Lehman Brothers in September last year, developers were still confident the Emirates would emerge relatively unscathed from the ripple effects. Projects such as Nakheel's Tall Tower, which is set to be even taller than the Burj Dubai, were announced with much fanfare at Cityscape last October.
At the time, Chris O'Donnell, the chief executive of Nakheel, described the crisis as a natural "cycle of economics", and appeared certain the company could secure the finance to pay for its new project. Meraas also officially launched Jumeirah Gardens at Cityscape, while dozens of other developers tried to sell their projects to a public that was becoming increasingly uncertain. Within weeks of Cityscape, the landscape of the UAE's property sector had started to change. As the global economic crisis gripped the sector, prices tumbled, projects stalled, jobs were cut and the number of disputes between investors and developers of unfinished buildings surged.
But as the downturn set in, the emirates were quick to react. Plans were announced for reforms to the sector, with the development and enforcement of more protective regulations and tough action on wayward developers. The Dubai Government-backed property firms were also among the first to benefit from the $20bn borrowing programme, the first half of which was subscribed to by the Central Bank. High-level consolidation is also in play, with Emaar Properties, Sama Dubai, Dubai Properties and Tatweer close to finalising a merger. Dubai World, which owns Nakheel and Limitless, has restructured its property affiliates, and more consolidation is expected between other developers.
That process is expected to help finish some of the emirate's key developments, such as The Lagoons and Dubailand, where progress has been slow. Even though Abu Dhabi has fared slightly better than Dubai, developers there have slowed or revised their projects and reduced sales prices. While uncertainty still looms over the financial strength of property firms - Nakheel has to handle a Dh12.92bn debt that comes due in December - and disputes still rage over late payments to contractors, there have been early signs of recovery in recent months, with the rate of price declines slowing.
It has been almost a year since the downturn started, and while moves have been made to reduce its effects, what the sector really needs to revive are property buyers and renewed confidence. With supply now outstripping demand, analysts have said those two needs were the biggest challenges for the sector, with some predicting full recovery will not take place until 2012, at the earliest. agiuffrida@thenational.ae
