ABU DHABI // At Cityscape Dubai last October, the property market was beginning to feel the tremors of a serious crisis. Lehman Brothers had collapsed just two weeks earlier and wordssuch as "default" and "insolvency" were slowly creeping into a lexicon previously dominated by superlatives.
All the same, two Dubai Government-controlled companies used Cityscape to announce their grandest projects yet. The Nakheel Tower, at more than 1km in height, would dwarf the Burj Dubai by some 200 metres. The Jumeira Gardens development by Meraas would rank as one of the emirate's most costly, at Dh350 billion (US$95.29bn), equivalent to double the nation's annual revenue from oil exports. One year later, images of these extravagant projects have faded. Neither has made any progress. What is more, Dubai's largest developers decided to attend this year's conference only at the last minute, reversing their earlier decisions to stay away. Emaar Properties, the largest developer in the region, and Nakheel initially said they would not participate in this year's conference, arguing they needed to focus on project delivery.
While last year, developers were making a last-ditch attempt to jump-start the economy with phantasmagorical images of the buildings they had planned, this Cityscape is likely to be dominated by the same companies trying to prove to past buyers that they are still operating and trying to find ways to get their towers built. "It's more about instilling a sense of confidence in people who have already bought than to entice new buyers," said Chet Riley, an analyst at Nomura Securities. "It's a theme of reassurance at a time when private developers are being squeezed to the point of collapse."
This year's discussion panels have titles such as "Hotel Investment in Dubai: Is The Bonanza Over?" and "Emerging Markets Amid Recession: Have They Lost Their Shine?" The speakers will try to answer questions about when investment will return to the economy and when banks will resume lending. Donald Trump is scheduled to give the keynote address, while the plot of land where the Trump International Hotel and Tower was going to be built is covered in sand and used as a car park.
Rohan Marwaha, group director of Cityscape, said the focus had changed dramatically from last year. "Completion and delivery are really the themes of the event now," he said. "It's an opportunity for real estate professionals and major investors to really take stock of what's happened in the last 12 months and adapt to these changing dynamics." The conference halls will not resemble a ghost town, but with as many as 60 per cent of developers seeing their businesses stall and one third of projects on hold or cancelled, the atmosphere will have changed, Mr Marwaha said. Cityscape organisers are expecting a decline in exhibitors and visitors of between 25 and 30 per cent.
However, the room could look emptier than that because many exhibitors have chosen to share a stand with another company to save costs. Where there were roughly 800 stands last year, there will be fewer than 500 this year. "It would be unrealistic for anybody to assume we could attract the same number of exhibitors," Mr Marwaha said. The two largest stands at this year's exhibition will be a company from Abu Dhabi, Aldar Properties, and a company from Dubai, Meydan City, something that is indicative of the changes in the industry.
Last year, Meraas Development, a property developer owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, had the largest stand. In the months since, it has quietly reduced operations and is working on a new masterplan for its project, according to people familiar with the company. Michael Atwell, the head of the regional office of the property consultancy Cushman and Wakefield said investors and businesses were not coming to be stunned with fantastic designs this year. "Cityscape is a good reflection of the market," he said. "People will go there, see what people are saying, talk to the big developers They will be interested in where the market is." In particular, because solid data on the property market and wider economic trends is scarce, it takes a meeting of all stake holders to get a true opinion of the market, Mr Atwell said.
Vincent Easton, the director of sales at the property company Engel and Voelkers, said the key message of the conference as a whole should be progress. "From the whole economic perspective, it needs to be seen that progress is still being made even though there has been a setback," he said. "Existing investors want to come down and meet their developer and find out what's happening. International investors will want to get a sense of where the market is going."
One likely refrain at Cityscape will be that Dubai's property prices have hit bottom, Mr Easton said. Property prices have started increasing in some areas and distressed asset funds are circling some projects, which are both clear signs of a possible recovery on the horizon. With development companies facing a shortage of cash and the off-plan business model completely upended, dramatic restructurings are under way. At the forefront of this process is Nakheel, the ambitious government-owned company that built the World archipelago and the Palm islands off the coast of Dubai. The company has to pay back a $3.5bn Islamic bond by the end of the year.
Olivier Laroche, a manager at the strategic consultancy AT Kearney in Dubai, said the crisis was testing every company and would reveal over time the most solid businesses. "If you look at the lessons learnt from the Asian crisis in 1997, you can see how these companies changed," he said. "To be a global player in real estate, a company needs to diversify revenue and become an asset manager rather than focus on development, which is an activity with huge ups and downs."
Mr Laroche said the sector had yet to see the necessary consolidation. There were hundreds of developers officially registered with the Real Estate Regulatory Agency, but this number was likely to fall substantially, he said. email@example.com