As the world's financial markets are roiled by the worst crises in a generation, all eyes in Dubai are on Cityscape.
Property pulse measured at Cityscape
As the world's financial markets are roiled by the worst crises in a generation, all eyes in Dubai are on Cityscape. The annual conference, which takes place from Oct 6 to Oct 10, is widely perceived as the pulse of the property market in the UAE. It is the largest of its kind in the world and often the scene of high drama, including sales made furtively in hallways, billion-dollar debuts of new buildings and some of the best minds in the industry discussing the future. More than 60,000 people are expected to attend this year.
"This has come at the best time possible," said Rohan Marwaha, the managing director of Cityscape. "Given what's happened in the US and the collapse of financial institutions on a global scale, there are a lot of questions on people's minds." Mr Marwaha said the conference theme would undoubtedly emerge as "how the Middle East is going to be affected by the current crisis around the world". But that's not the only thing hanging over Cityscape. In the past 12 months, a wide-ranging corruption investigation has landed top property executives in jail, and analysts have started predicting an imminent decrease in prices in the years ahead. Confidence in the market is wavering in some quarters.
And while Mr Marwaha believes that Dubai's fundamentals are strong enough to make it through another 12 months unscathed, interviews with property experts, developers and economists show a widespread unease has emerged, especially in the last week. Richard Rodriguez, who stepped down as chief executive of Emaar in Dubai earlier this month, gave perhaps the most straightforward and worrying opinion of the situation.
"There will be a slowing of real estate markets," he said. "Although Abu Dhabi and, to more of an extent, Dubai are media darlings, they are still relatively small markets on the global scale and are thus reactive and influenced heavily by global trends. Either the pace will drop or the prices will. Both cannot be sustained in this market condition." Mr Rodriguez said the failure of Lehman Brothers and the bailout of American International Group (AIG) in New York would lead banks to tighten lending for new developments and mortgages.
"Less mortgages mean less sales," he said, adding that developers' profits could also take a hit. "Thus far, a large portion of the profits of developers has been a result of free land granted from the government. As that slows, joint ventures are becoming more prevalent - and less profitable. There will be no collapse, but certainly a slowing." The chain of effect from the canyons of Wall Street to the towers of Sheikh Zayed Road is a complex one, but stock markets around the world have recently been a testament to the connectivity of the world's economies. As the crisis unfolded in New York in the past half year, property stocks in the UAE have sunk by double-digit percentages despite record sales and high profit-to-earnings ratios. Emaar has lost 29 per cent and Aldar Properties has lost 26 per cent of its value in the past six months. Investors clearly feel there could be a ripple effect in the region.
John Sandwick, the managing director of Encore Management in Switzerland, who was the chairman of Cityscape Dubai 2007 and the one in Abu Dhabi earlier this year, said developers at this year's Dubai conference were in for a "wake-up call". "Dubai real estate developers are going to have to rethink their projects," he said. "It's not going to be easy to finance projects any more and the Government is not an endless supply of cash."
Mr Sandwick said that many of the regional companies had been expecting the world's pension and other major funds to begin pouring money into the local markets. That now appeared unlikely, he said. AIG, which was bailed out by the US government last Tuesday, was initially thought to be a company likely to play a big role in the regional market. In April, it bought two office buildings in Dubai for US$170 million (Dh624.4m) in a move that property experts said would be the beginning of a flow of investment funds into the country.
Nicholas Maclean, the regional director of CB Richard Ellis, said the appetite for foreign investors to "come to a market they don't know is now going to be very limited". "They are going to consolidate what they have," he said. "Our ability to get foreign investment has changed dramatically in the last week." Another major issue for developers was the office market, which had been driven largely by the financial services sector, he said.
"That demand won't be there. And there is a lot of commercial space coming into the market." UAE developers without cash reserves would be the first ones to get hit when they came to the debt market, said Robin Williamson, the managing director of the Middle East office of DTZ, an international property consultancy. "Local banks have reached a lot of their limits, so projects that are on plan will have to rethink things for the next couple of months," he said. "If you are cash rich, like some of the very big names here, you will be fine. But those that aren't are going to have issues."
Cityscape will prove this point. While the smaller developers may have to go back to the drawing board, the big ones are going to come out in full force. The spotlight on Oct 6 will be on Meraas, a new multibillion-dirham developer and private-equity group of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. The group is redeveloping Satwa and Al Wasl into Jumeirah Garden City, a massive master development that will include gardens, canals and a super-tall tower. One design for the tower that is circulating among architects and property executives shows an astounding 2.4-kilometre structure called Dubai City Tower, but a more sober vision has also been put together by Adrian Smith and Gordon Gill called Atrium City Towers. Even that building would rise well above the Burj Dubai.
Mr Marwaha said Meraas was one of the conference's biggest sponsors. "Meraas is going to be a phenomenal launch," he said. "They are going to have a sushi bar, they are sponsoring the VIP lounge and have their own stand, which is huge." Still, officials in Dubai have a different take on the impact of the financial crisis. The silver lining could be its ability to lure more professionals and investors to the region as opportunities diminish elsewhere.
"The subprime mortgage crisis hasn't done anything to Dubai," said Sultan Butti Bin Mejren, the director general of the Dubai Land Department. "It's bringing people to Dubai." The UAE's banks have only minimal exposure to the slumping property markets of the US and Europe, said Marwan bin Ghalita, the chief executive of Dubai's Real Estate Regulatory Agency. "Our banks our investing here," he said. "In fact, I'm encouraging our companies to invest there now."
For the most part, though, there will be "more serious times in Dubai", said Adel Lootah, the executive director of Dubai Property Society. He added that the UAE markets were becoming more regulated, a further hurdle for developers in taking a building from idea to reality. "Only the strong will survive," he said. "In the past, somebody would put a down payment on a piece of land, make a brochure and start collecting money. Now, that won't work anymore."
* with reporting by Wayne Arnold @Email:firstname.lastname@example.org