A decade after the global financial crisis pushed Dubai’s real estate sector — known for its outlandish projects such as man-made palm-shaped islands — to the brink of collapse, the deadly coronavirus pandemic threatens to send it back there again.
S&P Global Ratings is warning that home prices could slump to 2010 levels as unemployment across key sectors such as tourism and retail eviscerates demand. Prices are currently about 5% to 10% above what they reached a year after the debt crisis in 2009, according to data from real estate services firm Asteco.
Developers are still wrestling with debt repayments that have already gone through a number of restructurings, while earnings for some companies linked to property have fallen through the floor. Emaar Properties PJSC on Monday said three of its listed companies will not pay dividends for 2019 in “view of the current circumstances.”
The Middle Eastern business and travel hub — like many other cities around the world — is in lockdown, with Emirates passenger flights grounded, the city’s cavernous malls and luxurious hotels shuttered. Dubai is especially vulnerable to the measures as it relies heavily on tourism and trade — both of which are also essential to keep up demand for properties.
“The real estate sector is likely to see a significant impact from Covid-19, with a drop in international buyers, the social distancing measures and the weaker market sentiment,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC. “The crisis will likely place additional pressure on a sector that is already suffering from oversupply.”
This year held hope for Dubai. The city was betting on the World Expo it’s due to host in October to give its economy and housing market a much-needed boost. Now, with much of the world in lockdown and the pandemic showing no signs of abating, the exhibition’s fate is also in question. Organizers of the event are likely to recommend a one-year delay to the world exhibition due to the pandemic, two foreign officials from countries involved said on Monday.
Even before the virus, Dubai’s housing market was under stress. The government has been struggling with an oversupply of property in a market that’s been on a downward trajectory since it peaked five years ago. The slump has defied all predictions of a rebound as house prices fell around 30%.
One of the biggest developers in the emirate, Damac Properties, suffered the first loss in nine years in 2019 and a plethora of newly-built malls are struggling to find tenants. DXB Entertainments, which hasn’t posted a profit since listing in 2014, is set for another year of pain as the coronavirus hits visitor numbers at the three theme parks it operates in the city.
To combat the slump, Dubai took a slew of measures to avoid a repetition of 2009.
The government started looking at restricting supply in its real estate market, eased residency rules for its mainly expatriate population, and encouraged investment in new industries such technology and research. Those efforts had limited results. Housing prices declined for a fifth straight year in 2019, driving down the emirate’s inflation into negative territory.
Dubai is also finding it hard to shake off some of its old problems. Developer Limitless World LLC is set to go through its third restructuring since the 2009 crisis as it struggles to repay debt. The emirate also faces the prospect of restructuring a chunk of $23 billion in loans to government-related companies maturing at the end of 2021 for a second time, according to Fitch Ratings Ltd.