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الأسبوع الماضي
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Awaiting a turnaround in GCC real estate
The emergence of a vibrant real estate sector was among the defining characteristics of the 2003–2008 Gulf boom, as glass and concrete became the most recognized face of economic diversification. The trend that started in Dubai quickly spread to the rest of the region, albeit with considerable local variations. Not surprisingly, in view of the robustness of the boom, the subsequent downturn triggered by the oil price correction and liquidity crunch led to precipitous property price declines. Although the situation was especially severe in Dubai, the crisis quickly spread to the rest of the GCC, driven by the same macroeconomic trends. Indications are that the oil price and broader economic recovery have now stabilized the market. However, the way forward looks set to remain bumpy with 2010 generally agreed to be a year of stabilization.
What goes up comes down! The extraordinary property boom of this decade in the Gulf saw prices defy gravity as many regional markets experienced severalfold increases within a short period. Bahrain saw the value of its top properties shoot up 600% within four years, while house price inflation in Dubai peaked at an annualized 42% in Q1-08. The boom proved transformative. It spawned a wide range of new projects and the pipeline remains strong despite numerous cancellations, modifications, and delays. Similarly, real estate became an important opportunity for the local financial sector both in terms of direct investments and through the gradual emergence of housing loans/mortgages. Despite the progress, however, even the Dubai market, which has been a regional vanguard, still remains some 80% cash-based in freehold areas.
Given the robustness of the oil boom and the extraordinary take-off of real estate from a modest base, it is hardly a surprise that the property markets were among the leading casualties of the subsequent correction. Although high leverage, reliance on foreign buyers, and emerging excess supply made Dubai particularly vulnerable to the downturn, the crisis quickly spread. Even though stronger fundamentals of individual markets curbed the downturn in some cases, weak sentiment and the relative uniformity of the external demand shock made a high degree of region-wide contagion inevitable. In Dubai, property prices for the third quarter are 47% down YoY and are now roughly comparable to those recorded in the second quarter of 2007. Colliers International put the decline in residential sales and rentals in key Saudi markets at 13–20% and 4–6% YoY respectively as of Q3-09. The biggest drops were seen in Riyadh and the smallest in the Eastern Province. Commercial land prices in Bahrain declined 20–30% in 2008.
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