What Emaar's decision to pause building means for Dubai's property market
Experts say Emaar’s moratorium on construction will help stabilise the real estate sector and may be followed by other developers
The move by Dubai’s biggest developer to halt any new projects will go a long way to stabilising the real estate market in the emirate, according to leading industry experts.
However, while the decision by Emaar Properties may relieve over-supply issues, it could leave the developer facing “a prisoner’s dilemma”, Morgan Stanley equity analyst Katherine Carpenter said.
Its subsidiary Emaar Development will probably “choose a suboptimal outcome, resuming launches next year”, rather than maximising shareholder value by waiting for another two years, she said in a report carried by Bloomberg.
The US bank’s note came after Mohamed Alabbar, chairman of both companies, said he’s stopping new developments, without giving any details on how long the moratorium would last.
“We don’t build anymore,” Alabbar told a conference in Dubai on Monday. “The government entities decided to stop new developments almost a year back, but Covid definitely put the brakes on.”
Home prices in Dubai, the Middle East’s main business and financial hub, have slumped by more than 30 percent since 2014, forcing the government to set up a committee to manage supply and demand.
David Abood, partner at CORE, told Arabian Business: “These are concrete actions from key stakeholders following the setting up of the real estate committee and this decision from Emaar marks a step forward in collectively addressing the oversupply issue that Dubai has been facing over the last few years.
“With Emaar being the biggest developer by volumes delivered and sold, both in the ready and the off-plan market, this step to scale back on new launches will greatly help in aligning the supply and demand equilibrium of the overall market.”
According to Knight Frank Middle East, in the year-to-date for 2020 there have been 5,376 residential units launched in Dubai, down from 18,894 in 2019 and 32,893 in 2018, largely as a result of the measures taken by the government and the continuing coronavirus crisis.
Taimur Khan, research manager at Knight Frank Middle East, told Arabian Business: “Whilst announcements such as the one made by Emaar to control supply will be welcomed, we are unlikely to see any immediate impact on average prices across Dubai as there is still a considerable amount of unabsorbed supply and over 130,000 units scheduled for delivery over the next three years - although historic materialisation rates suggest we will see less than half of this delivered over that period.”
He added that, although Emaar has halted new projects, the developer still has over 32,000 units marked as under construction with completion dates stretching to 2023, accounting for roughly 21.5 percent of total residential units under construction over this period.
Khan said the move could prompt a mixed reaction in terms of the impact on property prices.
“In more nascent neighbourhoods constructed primarily by Emaar we are unlikely to see an upturn in prices, however, for more mature neighbourhoods we may see price declines, moderate in the short run and a moderate uplift in prices in the medium term, assuming this moratorium on new supply holds,” he said.
Financial results for Emaar Properties revealed last month showed net profit from January to September dropped from $1.2 billion in 2019 to $663 million this year. While, in the first ninth months of 2020, Emaar Development, the company’s build-to-sale real estate business in the UAE, reported a net profit of $370m.
Michael Heitmann, head of consulting at CBRE, told Arabian Business: “Emaar has several ongoing developments to be delivered spread over various phases which will keep them busy and they will decide on launching any new projects once they see the opportunity.
“Covid disturbed and disrupted the way we live, work and play and together with the technological evolution happening, developers will need to reinvent and differentiate their products to meet future demands.”
Alabbar was criticised by Damac Properties chairman Hussain Sajwani last year as the main culprit in perpetuating the city’s oversupply. Sajwani said Emaar offered payment plans that encouraged speculation and wouldn’t slow building even when the majority of other big developers, including Meraas Holding and Nakheel, did.
However, Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, believed other developers may follow Emaar’s lead.
He told Arabian Business: “It reflects the realities of the market at the current time. Even before the crisis it was clear supply needed to be reined in and policy was moving in that direction, but more drastic action was needed post-Covid to ensure that there was a market for what is built.It’d be surprising if similar actions aren’t taken across the board.”
Morgan Stanley has an equal-weight rating on both Emaar Properties and Emaar Development. The former’s shares rose 3.5 percent to AED3.59 in Dubai on Tuesday, paring this year’s loss to 11 percent. Emaar Development rose 1.8 percent.
