The average downturn in Dubai's property market is hovering at 30%, according to Christopher Sims, COO of Gulf Housing, but within three years developers will be talking about 'mega projects' again.
Speaking at Meed magazine's Dubai Mega Projects conference, Sims said that although the current price upheaval was swifter and sharper than investors and developers had anticipated, it was still part of regular real estate cycles.
'Real estate goes through a seven or eight year cycle, we are at the bottom at the moment, but we will go up again, that's certain,' Sims told delegates.
'Three years from now we will be talking about mega projects again. Prices will go up, property is a solid investment – there is nowhere in the world where you can buy anything for what it cost 10 years ago.'
Although prices would begin to rise slowly once the market hit bottom, the market fundamentals would see more developers being pushed out of the market.
That more would be forced to close within the next few months was highlighted by the fact that the average time length for clients not being paid had risen to between six and nine months, with some owed anything from Dhs250m to Dhs800m, according to figures revealed by Trowers and Hamlins.
'Many developers did little or no market research – or didn't examine it if they did. They thought that it would go on and on,' said Sims. 'People are looking for quality developments now, not places in the middle of the desert with no infrastructure. You have to face reality, some projects are going to disappear.'
'The key benefit is that weaker players are going to disappear,' agreed Ian Ohan, Regional Director and head of investment transactions at Jones Lang Lasalle. 'Around 50% of residential and commercial projects scheduled for completion in 2009 to 2012 have been cancelled or put on hold.'
The cancellation of projects has paralleled the anecdotal evidence of an exodus of expatriate workers from Dubai. 'UBS figures predict that the numbers of expats could fall by 160,000 by 2010,' said Ohan. 'It's going to get worse before it gets better.'
Ohan added that developers were likely to face further difficulties, as investors in offplan developments were either in danger of defaulting, or worried by the impact that defaults would have on project completion: 'People who bought off plan in the last 18 months bought at prices that were likely to be over-inflated. Faced with a depreciation in asset value before even completion, many will be considering cutting their losses and defaulting – which in turn enhances the fear factor of the impact of defaults on projects underway for the remaining investors.'
'We believe that 2009 will be a year of correction, 2010 will be the year of stabilisation and that 2011 will be the year of recovery.'
Despite the seeming lack of transactions in the property market, there are investors waiting in the wings, although the attractiveness of opportunities is based on Dubai regaining its 'value for money' factor.
'If prices do adjust and Dubai does become competitive, then the appeal is definitely still there,' said Ohan. 'Investors are there, but for now they are looking at niche deals; industrial, healthcare, labour accommodation, education, smaller cash plots – things like that.'
Cirrus Developments recently announced the creation of a fund to acquire distressed assets and companies, and Gulf Housing is also one of the companies looking to spend in the market. 'We are cash rich,' said Sims, 'we are in the market for acquisition – we are just waiting for prices to return to reasonable levels.'