The global financial crisis has changed the landscape of the Gulf real estate market this year, with a downturn in the commercial, residential, hospitality and retail markets. However, countries in the GCC continue to invest in infrastructure and public works to boost the market and secure the future success of the region.
State Of The Market
A survey in March 2009 found that investors in the GCC see Abu Dhabi as the region’s strongest-performing real estate market in the Middle East North Africa (MENA) region during 2009 — 2010. Abu Dhabi (at 26%) is closely followed by Saudi Arabia (25%) and Qatar (19%).4
It is estimated that more than 15,000 apartments in Qatar are vacant.5
In Dubai’s central business district (between the World Trade Center and Interchange 1), office rents in September 2009 averaged between AED 225–275/square foot, as compared to AED 375–400/square foot in November 2008. In Abu Dhabi, office rents averaged AED 230/ square foot in September 2009, a fall from AED 280/square foot in November 2009.6
Developers claim that Bahrain will need 80,000 housing units targeting the middle and lower-income market segments to meet demand by 2020. The Bahraini government has announced plans to build 50,000 low-cost housing units by 2014.7
Analysts forecast that the Kingdom of Saudi Arabia will have to build 1.5 million new homes by 2015 to meet its housing demand. Projections estimate that at current levels of supply, the KSA market will see a shortage of 150,000–800,000 housing units by 2012.8
Projects in Bahrain currently hold a cumulative worth of over $36 billion. Since the start of the economic crisis, 54 projects have been cancelled or put on hold, while construction and planning continue on 148 projects.9
His Highness Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai and Vice-President of the UAE, was quoted as saying that the worst of the crisis had passed and the emirate was well poised to recover, as real estate does not constitute the mainstay of Dubai’s economy.11
Dubai World, which owns the property unit Nakheel, has asked creditors to allow the firm to delay debt payment until May 2010 at the earliest. The Dubai government announced that it had borrowed $5 billion — half of the $10 billion it initially planned to raise by the end of 2009 — from Abu Dhabi’s government-controlled banks.12
The Dubai government announced that it would not guarantee Dubai World’s debt of $59 billion and that lenders must bear part of the responsibility.13
As part of an initiative to protect property investors, the Dubai Land Department is working on drafting a new law that would further regulate the relationship between developers and investors.14
Due to a new supply of hotel rooms, the average occupancy rate has dropped below 70% from peaks of over 87% experienced between January and June 2008.15
Market Correction
Property prices for undeveloped land in Kuwait have fallen by 40%–50%, and built properties have seen devaluations of up to 30%.18
By the end of 2008, Dubai’s commercial sector reported a 16% vacancy rate, up 7% from six months earlier.19
A 400-square-meter villa in Qatar was for sale at $549,390 in September 2009, down from $824,085 in September 2008.20
Qatar’s current projects have a cumulative worth of over $42 billion. Since the start of the economic crisis, seven projects have been cancelled or put on hold, while construction and planning continues on 124 projects.21
Delays
$220 billion worth of projects have been put on hold or cancelled in the GCC since the start of the global economic slowdown, with 91% of the cancellations announced in Dubai. Besides the announced postponements and cancellations, 54% of all announced projects in the GCC, totaling $1.05 trillion in projected costs, are under threat of being put on hold or cancelled.22
Sales & Marketing
Saudi Arabia has banned off-plan sales and promotions without prior approval from a commission that has yet to be established.26
Mergers & Consolidations
The government of Qatar ordered Barwa Real Estate and Qatar Real Estate (Alaqaria) to merge operations in early 2009. The two companies are in the final stages of merging their non-competing portfolios, which will result in a real estate giant with a market capitalization estimated at $3 billion.27
Amlak and Tamweel declared in November 2008 that they would initiate a merger between themselves and two other government-owned banks, which was to have been completed by Q1 2009. The global real estate crisis and deepening recession have negatively affected both lending institutions, and the nationwide steering committee responsible for seeing through the merger is still reviewing the plans.28
In March 2009, Qatar’s Ezdan Real Estate Company — the country’s largest property firm, with market capital of $2.6 billion — revealed that it was looking into the possibility of merging with the Group of International Housing Co. to help both companies weather the economic slowdown.29
After months of talks about combining Deyaar and Union Properties into a single company, the merger was scrapped because the new entity would not be able to secure financing in the tough real estate climate.30
Commercial
In the Jeddah office market, rents continue to decrease and vacancy levels continue to rise with the arrival on the market of new, better-equipped office spaces.32
Average Dubai office prices were down 58% and office rents fell 44% in Q3 2009 as compared with the same period in 2008.33
Office rents in Dubai’s free zones have fallen by as much as 63%. While Dubai International Finance Centre (DIFC) continues to command the highest rates in Dubai (AED 280–325/square foot), Jumeirah Lale Towers (JLT) has seen a significant drop in asking prices, down from AED 240–280/square foot in Q3 2008 to AED 70–120/square foot in Q3 2009.34
Retail
Retail rents in Dubai have fallen by 18% in the past year due to an oversupply of stock and lack of demand.35
Mortgages & Financing
In recent months, banks in the region have introduced stringent rules for lending. It is estimated that 70% of banks in MENA have restricted mortgage loans to individuals earning more than $5,450 per month. Of those surveyed, 77% of lenders are still financing residential properties; and 40% of these limit financing to one property per applicant.37
UAE Central Bank figures show that mortgages provided by the nation’s 52 national and foreign banks rose by AED12 billion from January to June in 2009, as compared to AED44 billion for the same period in 2008.38
Layoffs
In December 2008, Nakheel made 500 staff members, or 15% of its work force, redundant, while its sister company Istithmar World cut almost 10% of its work force. Facing continuing cancellations and project delays, Nakheel cut another 400 staff members in July 2009.39
Deyaar laid off 20% of its work force in October 2009, days after posting a 74% drop in Q3 profits as compared to the same period in 2008.40
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