UAE Property – Chill winds rapidly changing landscape
In it’s latest report Morgan Stanley summarized what the firm considers are the most important developments in the UAE property market, with highlights on what is expected from Emaarâ€™s 4Q08 numbers and likely operational performance over the next 2-3 years.
UAE property prices have fallen off a cliff
As it was expected, property prices in the region have come down across the board since their peak in September 2008, albeit at a much faster rate due to the global financial crisis. According to MorganÂ Stanley proprietary property price index, asking prices in Dubai have fallen by an average of 25% and 20% in Abu Dhabi since their peak in September 08 (see facing Exhibits). Moreover, anecdotal evidence suggests sharp falls in transaction volumes in 4Q due to deteriorating economic conditions, the disappearance of speculative buying and the lack of financing.
Signs of Dubai rental market weakening, but not yet Abu Dhabi:
Rental rates started to ease in Dubai in December 08, where average rents have fallen by 7% on average since their peak last summer. This is explained by the growing supply of new properties coupled with decelerating demand and reduced affordability. Abu Dhabi seems more resilient so far, given its different demand/supply fundamentals.
Project delays and new launches halted:
Property developers have started to announce project delays in response to falling demand and deteriorating market conditions. According to Zawya, US$263 billion worth of projects in the UAE have been delayed/cancelled, with all the recently announced mega projects, including Meraas Jumeirah Gardens (US$98bn) and Nakheelâ€™s Harbour project (US$38bn), put on hold.
Emaar 4Q08 results:
The market may have already factored in a sharp fall in the groupâ€™s 4Q08 numbers, but there are a number of pertinent questions that need to be answered by management, in our view. In particular, given the challenging operating environment, an update on its future strategy is particularly pressing, we think.