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Dubai developers post huge profits despite real estate slowdown

Property market witnesses downward trend due, in part, to new supply of residential units and falling global oil prices

Dubai’s property market has been witnessing a downward correction after it peaked in October 2014 at levels higher than those achieved during the recent global financial crisis.

However, the emirate’s real estate companies have reported positive performance in the second quarter of 2015 and a multi-billion dirham mega-development project has been announced amid the worries over the worsening market.

After booming for the past few years in a strong recovery from its crash in August 2008, the city’s residential property market lost steam this year due to the new supply of residential units and falling global oil prices. Weakening investor sentiment and the devaluation of the Russian rouble also contributed to the downfall.

Selling prices of property in Dubai dropped by an average of eight per cent since June 2014, according to leading real estate, investment and advisory firm Jones Lang LaSalle’s (JLL) second-quarter Dubai real estate market overview report for 2015. This comes as records from the Dubai Land Department (DLD) show a 69 per cent decline in the number of residential transactions in the first half of the year compared with the same period in 2014.

According to DLD data, only 7,300 apartments and villas were sold in the first six months of 2015, compared with approximately 14,000 over the same period in 2014.

Residential rents dropped by three per cent quarter on quarter during Q2 2015, while capital values for completed apartment units fell by 3.5 per cent, according to a report by Abu Dhabi Islamic Bank (ADIB) and MPM Properties, published this week.

In its UAE Property Review – Q2 2015 report for Dubai, the leading real estate consultancy Asteco said that the property market was edging further south as rental rates for apartments and villas across the city declined by two per cent in the second quarter, compared with the first three months till April 30.

Properties on Sheikh Zayed Road saw a seven per cent decline, while Palm Jumeirah recorded six per cent and Jumeirah Beach Residences witnessed a seven per cent drop in quarter-on-quarter apartment rental rates.

Asteco reported an 18 per cent year-on-year decline in the prices of Palm Jumeirah villas and a ten per cent drop in property prices at Arabian Ranches.

Another real estate consultancy, CBRE, said that the rental market recorded marginal deflation in rates during Q2, posting the first quarterly drop since 2011.

In its recent report, financial services company Standard & Poor’s forecasts a moderate ten per cent to 20 per cent correction in Dubai’s residential real estate prices this year, due to additional supply and lesser demand in the UAE property market. However, it said the decline will be much less than what led to the Dubai crisis in 2009.

More recently, a real estate agency in the city filed for bankruptcy and ceased operations after blaming the deteriorating property market for its closure.

“Current Dubai market factors didn’t help, as 2015 property transactions, both in number and value, have plunged,” said S&K Estate Agents.

Meanwhile, DLD has announced that the total sum of investments in Dubai’s real estate market for the first half of 2015 exceeded AED53 billion.

“…Dubai’s real estate sector is now enjoying sustainable growth. Based on the strong performance of the market, we fully anticipate that the momentum will continue throughout the next five years as we lead up to Expo 2020, the biggest marketing event in the world,” said Sultan Butti Bin Mejren, Director General of DLD.

Leading realty company Core Savills said it expects a return to growth as Dubai gears up for Expo 2020 and has welcomed the drop in prices as a healthy and positive market adjustment after the strong growth numbers posted in 2014.

In somewhat agreement with Core Savills’ view, the real estate website Bayut says that what Dubai currently faces is a “positive slowdown” and it is likely to bounce back, thanks to the increasing size of the market and the resilient trust of investors in the market’s ability to overcome all downfalls.

Interestingly, despite the worries over a worsening market, the major property developers in the city have beaten expectations and posted promising results.

Emaar Properties reported a 16 per cent increase in second-quarter earnings to AED3.48bn from the first quarter, backed by firm growth in its retail, malls and hospitality units. The company’s net profit rose to AED1.18bn from the same period last year, beating the Securities & Investment Company of Bahrain’s (SICO) forecast of AED817 million.

The developer of the iconic Palm Jumeirah, Nakheel Properties, posted a 53 per cent increase in net profit for the first six months of the year, largely due to a strong performance in its development business.

The company made AED2.83bn over the six months ending June 30, 2015, compared with the AED1.85bn it reported for the same period a year earlier.

Meanwhile, DAMAC Properties, a privately run developer, posted a 207 per cent increase in second-quarter net profit to reach AED1.42bn for the three months to June 30, up from AED461.1m a year earlier.

Craig Plumb, Head of Research at JLL MENA, believes the shortage of middle-income housing is one of the greatest challenges the real estate industry in the Middle East is facing at the moment, but he pins his hopes on the upcoming Cityscape Global Conference in Dubai.

“There are several constraints and challenges that have resulted in the current shortage of housing for middle-income households and the Cityscape Global Conference is the platform to address these issues with leading experts in the field. For the first time in the UAE, we will show how much such households can afford to spend on their housing in the region,” says Plumb.

In a big move, The Meydan City Corporation announced on August 4 its plans to develop the new record-breaking mega tourism development project, Meydan One, which will include the world’s tallest residential skyscraper, Meydan One Tower. The tower – 711 metres high – is a mixed-use complex that will host 885 residential apartments and be home to more than 78,300 residents.

Meydan has revealed impressive details of the new project, but it will unveil more information at this year’s Cityscape exhibition, taking place at the Dubai World Trade Centre from September 5 to 7.