A Cautious Time for Dubai's Real Estate

Having got over the worst in the last few months, Dubai is once again in the news for more positive reasons. The construction industry is picking up once again, both on the residential and commercial fronts. Developers are once again picking up unfinished building contracts and trying to deliver them albeit a little behind planned schedules. Current estimates already place Dubai with a 20 percent over supply of apartments compared to the demand for them, and this is likely to see the value of rented and available for sale residential real estate fall by as much as 30 to 50 percent by the end of the year.
With oil prices having normalized, liquidity and confidence seems to be returning to the Middle East. In Dubai, work has resumed at a frenetic pace and the task of expanding its airport, landscaping golf courses and other such related developments continues unfettered. Abu Dhabi’s partial rescue of Dubai World has done much to restore the faith of UK based banks. However they are still trying to control their exposure and as a result the task of putting liquidity into the banking sector will be left to mostly locally based banks.
Meanwhile the rising price of oil has given some hope to formerly stagnant projects, as many previously discarded ventures have suddenly become viable. As cash and credit begin to fuel the economy once again, this has prompted a much needed sigh of relief in the region. However the mood by and large continues to be cautious. Although there is a sense that the worst is over, almost no one expects to get back to the heady days of the boom period.
In a sense December’s bleak financial period served as a much needed wake-up call not only for Dubai but the rest of the region as well, forcing business and Government functionaries to shape up. One effect has been that people are now more inclined to think from a longer term, wider perspective. For example, people have realized that leaving behind sunk costs in unfinished partially completed construction projects may not be viable especially if more than 30-40 percent of the budget had already been spent. It makes more sense to go for completion and get the money back from sellers, renters or investors. What is abundantly clear now is that the investment climate will get better as people and firms get a better sense of the worth of their investments and the outlook for the future. Banks are also making an effort to increase liquidity, encouraged by the news that US$ 4 billion of Dubai’s funds remained untouched in the coffers of the emirate of Abu Dhabi.