Dubai's frenzied, trillion-dollar building boom falters
The global credit crunch and falling oil prices are taking a toll on the superrich Gulf emirate as developers mothball high-profile projects and lay off workers.
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Mr. Allen, who sat in the palatial Emirates Mall where shoppers gawk at skiers on the mall's famous indoor ski slope, says anyone who is overexposed and overleveraged right now may lose their business. "If you are a real estate company that is underfunded, there's a good chance you're going under in the next few months."Skip to next paragraph
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That's because many investors were "flipping" property. It was possible and profitable to flip, thanks to skyrocketing property prices and cheap credit. But financial institutions that allowed buyers to put as little as 5 percent down on a property a few months ago have raised that amount to 50 percent. Some institutions have stopped lending altogether.
Banks are also feeling the pain.
"We are experiencing a painful credit squeeze that comes after a five year run of rapidly expanding loan growth from the local banks and ready access to funds from outside," says Simon Williams, HSBC chief economist for Gulf markets. "The local banks are at their limits and external funding is now difficult to secure."
Two of the UAE's largest mortgage companies, Amlak Finance and Tamweel, were nationalized last week, bringing them under the country's ministry of finance, in what was seen as the UAE's first bailout since the crisis began washing over the country.
In response to the crisis, Dubai has established an emergency Financial Advisory Council. One of the goals of the council is to consolidate future projects, which means putting some on hold, and cancelling others altogether.
Then came layoffs. In the past month, billion dollar real estate development companies such as Tameer, Damac, and Omniyat announced they would lay off hundreds of employees, mainly due to "redundancy."
This week's announcement that Nakheel, the developer of the palm island where the Atlantis party was held, would dismiss 15 percent of its workforce only added to the anxiety of Dubai's hundreds of thousands of expatriate workers.
Emirati officials have tried to reassure investors. Mohamed Ali Alabbar, chairman of Emaar Properties and head of the Financial Advisory Council, said last month the real estate sector is "witnessing a healthy correction."
Allen, the author of the real estate survey, echoes this opinion, saying the slowdown will weed out the short-term speculators who drove the market into a bubble. He says the real estate agents he surveyed believe the "market will turn around in 3 to 6 months."
But at the moment, the mood here ranges from gloomy to frantic. "The issue that worries me most is oil. It's the catalyst for so much of what takes place here," HSBC's Mr. Williams says. "If oil prices slump and continue to fall it will feed through into the performance of the real economy, and that will in turn put real pressure on real estate prices."
Top 10 global builders
Square footage for under-construction office space in June. Numbers in millions.
1. Dubai, UAE – 42
2. Shanghai, China – 41.6
3. Guangzhou, China – 19.8
4. Paris – 18.6
5. São Paulo, Brazil – 15.6
6. Washington – 14
7. Seoul, South Korea – 13.4
8. Moscow – 12.9
9. Beijing – 12.3
10. St. Petersburg, Russia – 12.2 (tie) Kyiv, Ukraine
Source: Colliers International