Gulf Real Estate Study

This past year has witnessed the greatest highs and lows of the past decade in the Gulf real estate market. In the same year that the tallest tower in the world was completed, the global financial crisis eclipsed many of the extraordinary achievements in the region. Developer brands went through flux and, in many cases, reputation crises; investors suffered heavy losses; and expatriates left the region. The last twelve months also had cause for celebration, with the inauguration of The Palm monorail and the Dubai Metro, new pieces in the infrastructure of Dubai that will serve as a blueprint for the future of the region’s infrastructure. These valuable investments in the region will create better, more comfortable and sustainable cities in the long term, so while the real estate sector is down, it is not out for the count.

The Highs

In 2009 we celebrated some milestone events that placed the region in the global spotlight. The Dubai Mall opened to great fanfare, the first F1 Etihad Airways Abu Dhabi Grand Prix was successfully staged at Yas Marina Circuit and The Pearl Qatar opened. The inaugural Dubai World Championship at Jumeirah Golf Estates created a new blockbuster sporting event for the region, which will contribute to the rise of the region as a center for sporting excellence. Dubai’s airport announced a year-on-year growth of 9.2% in passenger numbers during 2009 with a record 40.9 million passengers, the fastest growth in passenger numbers among the world’s busiest airports. ¹

The inaugurations of The Palm monorail and the Dubai Metro were significant landmarks of infrastructure investment in Dubai, setting an example for the rest of the region. Developers in other GCC countries are following Dubai’s lead in creating sustainable transportation links and connecting new developments such as Masdar City in Abu Dhabi to the wider public transport network, thus creating more comfortable, better connected and more pleasant cities for the future. Qatar and other countries in the region are investing heavily in their tourism infrastructure and cultural centers — the Museum of Islamic Art in Doha, which opened in December 2008, and the bold projects planned for Saadiyat Island are prime examples – thus improving the quality of the countries both as destinations to visit and places to live.

The Lows

Institutional and foreign investors left the region during the last twelve months, precipitating a slump in demand, that was followed by sharp drop in speculation. Unlucky investors who had bought properties at the peak of the real estate market were left with depreciated values and without prospective buyers. Investor confidence reached an all-time low, and leaders of developer brands refused to give a clear account of events, creating a detrimental information famine.

Houses, shops, offices, hotels and restaurants that had been built on aggressive and optimistic demand projections faced the sobering reality of oversupply and the transition from a seller’s to a buyer’s market. With developers slow to react to the change in the market conditions, many completed buildings were left empty with for lease/sale signs on their facades. Developers could not access the necessary capital to pay contractors and manage their staggering debts, while investors and buyers suffered the disappearance of financing products and increasingly complex requirements for those that remained. Market demand evaporated, further contributing to the overall economic stagnation.

Developers could not access the necessary capital to pay contractors and manage their staggering debts, while investors and buyers suffered the disappearance of financing products and increasingly complex requirements for those that remained. Market demand evaporated, further contributing to the overall economic stagnation.

With the fundamentals of business in disarray, companies looked to cut operational costs with rounds of redundancies; triggering an exodus of expatriates and sensationalized news of abandoned cars and unpaid personal credit card bills. This was followed by a number of project cancellations, delays, indefinite postponements and reevaluations. Many organizations either collapsed or were forced to merge to consolidate their portfolios and international footprints. The Dubai World debt default announcement in November sent shock waves through the global financial markets and triggered fears of a second global financial crisis – one with its source in the region. The resulting damage to the real estate sector’s credibility has left legions of disgruntled — and vocal — investors and workers in its wake.