Monday 28 May 2018

Dubai developers warned to adjust their model or face trouble in 2016

Developers in Dubai need to change the way they do business, says the city's biggest landlord
Developers in Dubai need to change the way they do business, says the city's biggest landlord

Zainab Fattah

Dubai's biggest landlord has a message for the city's developers: get ready to rethink your budgets and building plans repeatedly this year or be engulfed by a topsy- turvy market.

Companies need to be "more agile to sustain their businesses and survive the tough period ahead," said Hesham Al Qassim, chief executive officer of the state's Wasl Asset Management and vice chairman of Dubai's largest lender, Emirates NBD PJSC. "Those who are mindful of the reality around them will manage, but those who stretch themselves with billions worth of projects won't."

Dubai's property market was buffeted last year by falling oil prices, rising political tension in the region and slowing economic growth from China to Brazil, all trends that are set to continue in 2016. Real estate developers, whose projects can take two to four years to build, may see their markets change several times over that period.

Residential property prices in Dubai dropped around 15pc last year and rents softened as demand from European and Russian buyers waned, Phidar Advisory said Jan. 11. The dollar- pegged dirham made properties more expensive at a time the decline in the oil price put pressure on government spending.

Dubai is part of the United Arab Emirates along with Abu Dhabi, which relies on oil for 51pc of its gross domestic product."

"I'd be very cautious, whether running an asset-management company or a development company," Al Qassim said. "I have to be very dynamic in terms of my budget planning. When there is a slowdown, I have to go through my budget and try to adjust it according to the market."

Wasl, which collects rent from around 35,000 households and holds offices, hotels and golf courses across Dubai, is developing thousands of middle-income homes, a market that's experiencing a severe shortage. Al Qassim said he reviews the company's plans often, shelving some and delaying or altering others to better respond to fast-changing demand and market sentiment.

We look "to develop what the company can afford to do in the worst-case scenario," he said.

Emaar Properties PJSC, Dubai's biggest developer and builder of the world's tallest tower, has fallen 18pc this year. Deyaar Development PJSC declined 15pc, while Union Properties PJSC lost 13pc. The benchmark Dubai Financial Market General Index is down 12pc.

Al Qassim says greater interest-rate stability shows that the U.A.E. market is adjusting to lower oil prices. However, bankruptcies at some companies in the country could set off a chain reaction that hurts many others, he said.

Emirates NBD, Dubai's largest bank, expects earnings to be flat in 2016 and the bank will freeze hiring to reduce staff through attrition rather than job cuts, Al Qassim said. Growth will probably return in mid-2017 as a decline in values spurs new demand and momentum builds ahead of Dubai hosting of the World Expo 2020.

Wasl, which completed the construction of 1,244 affordable homes for leasing this year, is planning to build another 5,000 homes. The asset manager is also building a 260-room Mandarin Oriental hotel to open in 2017 as well as the world's largest Hampton hotel with 400 rooms to be completed by 2020.

Occupancy stood at 82pc across Wasl's hotels in Dubai last year, though average room rates have declined by around 30pc, Al Qassim said. "The drop in the average price is good," he said. (Bloomberg)

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