Dubai’s unravelling real estate sector has served as a reminder of how fast markets can turn.
Prioritising is the latest trend for Gulf developers, as the credit crunch continues to wreak havoc on the region’s project market.
With banks increasingly refusing to finance real estate projects, and anecdotal evidence suggesting property sales in Dubai are dropping sharply, it is time for developers to decide whether their projects should be delayed, scaled back or even cancelled.
These are difficult and unfamiliar decisions for developers to have to make, but some at least are facing up to the fact that many projects no longer make financial sense.
That realisation began in Dubai but is beginning to spread into other markets. Until now, Saudi Arabia has been confident that its oil-based economy would protect it from a global economic downturn. But Dubai’s quickly unravelling real estate sector has served as a reminder of how fast markets can turn. In the space of two months, it has shifted from a position of impregnable strength to one of desperate uncertainty.
In Saudi Arabia, Emaar, The Economic City, developer of King Abdullah Economic City, the country’s flagship real estate development, is assessing its options as it realises that it too needs to prepare for a slowdown.
The dangers are very real. The multi-billion-dollar economic city programme depends on private sector involvement and will be subject to the same global pressures that are affecting the UAE market.
One solution identified by Emaar is to redirect its efforts towards lower-cost housing, which is easier to sell when times are tough.
Ultimately, developers across the Gulf will have to adopt a similar approach, and adapt their projects to fit the new economic climate. If they do not, many schemes will simply fail.