Real estate sector in Dubai is worst hit in economic terms, officials admit

The construction and real estate sectors in Dubai have seen a decrease of almost 5% in 2010 and recovery is some way off, according to officials.

The property and construction sectors are the worst hit in the emirate by the global economic downturn, according to Sami al-Qamzi, director general of the Dubai department of economic development.
‘I believe that all the main sectors have registered varying proportions of growth (in 2010), except property and construction which saw a five percent drop,’ he told AFP.
Growth in the construction sector is based on supply and demand, thus ‘its recovery will take a longer time,’ added Qamzi, who was speaking on the sidelines of the Global Agenda Summit in Dubai.
The world debt crisis has exacerbated economic woes in Dubai as its real estate sector plummeted when international finance dried up. Property sale prices in the emirate are estimated to have more than halved in value since peaking in 2008.
And the emirate is likely to see an increase in vulture funds targeting the rise in distressed real estate assets coming onto the market towards the end of the year.
The Global Distressed Property Monitor, compiled by the Royal Institution of Chartered Surveyors (RICS), found that the number of distressed assets coming onto the market in the UAE increased in the third quarter of 2010 and will increase further in the last quarter of the year.
Jonathan Fothergill, director of valuations at Cluttons UAE, which took part in the RICS survey, said it is no surprise. He confirmed that a number of GCC and international funds are ‘currently undertaking due diligence on the Dubai and Abu Dhabi commercial and residential real estate markets who are taking the view that we are moving close now to the bottom of the market, and that the next six months or so provides the optimum time horizon for real estate acquisitions’.
Evidence of such vehicles operating in the market was highlighted last week by the launch of the UAE’s first Real Estate Investment Trust (REIT), a joint venture by Dubai Islamic Bank and French property firm Eiffel Asset Management.
‘The timing of this would indicate that there are both an increasing number of assets available to buy at the right price, and a growing confidence that property investment requirements are changing to long-term, low risk and secure profiles,’ said Murray Strang, senior valuations officer at Cluttons UAE.
The increase in distressed selling was echoed by Tom Bunker, investment sales consultant at Dubai based agency Better Homes. “We have already seen examples of distressed properties hitting the market well below what they were purchased for and in some cases below the price level at which they were originally sold by the developer,’ Bunker told Arabian Business.