Swiss investment bank reiterates impact of potential property bubble for Dubai
The Swiss investment bank UBS is surprised that most regional observers seems to regards inflation as the biggest macro-economic risk on the horizon… and not a potential real estate bubble. But projects could end up in default and burden the banking sector.
The premier investment bank has raised its concern regarding the risk of a real estate ‘bubble’ to the UAE economy and being a greater threat to growth than inflation. In its latest report, the Swiss bank said after 2010 the realty environment could become more challenging, leading to a slowdown in Dubai and shift the focus of the property market of Abu Dhabi.
UBS expects about 150,000 residential units to be completed in Dubai in the next two years, bringing the market into balance some time in 2010. Thereafter, the housing market might well swing into over-supply.
That risk currently appears most relevant for the high-end residential market, which is seeing much bigger supply growth than the mid-market. There are already indications that occupancy ratios in the high-end segment are markedly lower than in the mid-segment.
This could have wide-reaching impact on the economy because the construction and real estate sectors contribute heavily to GDP growth as well as creating additional spillovers in other sectors, such as banking.
In the office segment, UBS said a lot of supply is in the pipeline, entering the market between late 2008 and late 2009 in Dubai and from late 2009 in Abu Dhabi. The office market in both Dubai and Abu Dhabi is also characterized by short-ages, with occupancy rates around 98 per cent and even higher in the prime locations.
The premier investment bank has raised its concern regarding the risk of a real estate ‘bubble’ to the UAE economy and being a greater threat to growth than inflation. In its latest report, the Swiss bank said after 2010 the realty environment could become more challenging, leading to a slowdown in Dubai and shift the focus of the property market of Abu Dhabi.
UBS expects about 150,000 residential units to be completed in Dubai in the next two years, bringing the market into balance some time in 2010. Thereafter, the housing market might well swing into over-supply.
That risk currently appears most relevant for the high-end residential market, which is seeing much bigger supply growth than the mid-market. There are already indications that occupancy ratios in the high-end segment are markedly lower than in the mid-segment.
This could have wide-reaching impact on the economy because the construction and real estate sectors contribute heavily to GDP growth as well as creating additional spillovers in other sectors, such as banking.
In the office segment, UBS said a lot of supply is in the pipeline, entering the market between late 2008 and late 2009 in Dubai and from late 2009 in Abu Dhabi. The office market in both Dubai and Abu Dhabi is also characterized by short-ages, with occupancy rates around 98 per cent and even higher in the prime locations.
The property situation in Abu Dhabi appears somewhat different, as the construction boom is less advanced there than in Dubai. In 1999-2001, Abu Dhabi imposed a construction moratorium, the impact of which is still apparently being felt.
The average weekly gain for the UAE’s real estate stocks was 4 per cent. Sorouh Real Estate has recorded a 218 per cent growth in net profits to Dh361 million (2007: Dh114 million) for the first quarter of 2008. The improved profit performance, representing 14 fills a share (4 fills in Q1-2007), came on the back of income from land sales at Shams Abud Dhabi, which was converted during 2007 from leasehold to freehold sales, as well as the good performance of the company’s asset portfolio.
The profit generated in the first quarter was derived from operating activities with no asset revaluations. The changes at Shams Abu Dhabi also meant revenue grew strongly, from Dh280 million in Q1-2007 to Dh624 million. The management says it is pleased to report another good financial performance for the first quarter.
Sorouh’s share gained 3.6 per cent during the week.
Aldar Properties reported a 196 per cent gain in first quarter net profits to Dh1.36 billion, up from Dh450.7 million in 2007. Gross revenues were Dh2.23 billion while the earning per share came to Dh.0.59 from Dhs.0.26 a share in 2007.
Aldar has confirmed developments worth Dh10.5 billion under construction, up from Dh8.33 billion in 2007. Its net asset value was up 21 per cent to Dh9.32 billion, from Dh7.68 billion in 2007.
The financial results come a week after Moody’s Investors Services assigned long term local and foreign currency issuer ratings of ‘A3’ to Aldar. Moody has described the outlook for the firm as stable. The stock price registered a weekly gain of 4.6 per cent.
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