There are increasing signs that the property recession is not yet over as companies see profits decline and prices of homes drop.
Reports show property developers in difficult cycle
Property developers' latest earnings show the sector is struggling to break a cycle of sluggish sales, rising supply and falling prices.
Deyaar Development, Dubai's second-largest developer, yesterday posted a Dh145 million (US$39.4m) loss for the third quarter, while Rak Properties said profit fell 9.8 per cent to Dh163.8m for the first nine months of this year compared with the same period a year earlier. Arabtec, the UAE's biggest builder also suffered a decline in profits of 96 per cent in the third quarter compared with the same period last year to Dh6.8m after contracts were cancelled.
Colliers International, the property broker, delivered more bad news for the market when it published a report that showed prices fell by about 6 per cent over the quarter from the previous quarter.
Ian Albert, the regional director of Colliers, said "after a period of stable prices, we are beginning to witness a shallow but lengthening slide in overall prices". The situation could become worse as 33,000 new units are released on to the market by the end of this year, he added.
Analysts had predicted prices would halt their decline and begin a gradual recovery this year as lending to home buyers resumed and companies were restructured.
But with buildings in Dubai financed directly by buyers, the downturn is lingering, according to analysts. If developers stop building, they are liable to reimburse the full amount buyers paid. And if buyers default, they can lose their payments up to that date. That is pushing both sides to continue construction on some buildings, even if they are no longer commercially viable.
Mohamed Alabbar, the chairman of Emaar Properties, said the oversupply in Dubai would last for another 20 months.
Speaking at a conference in New York, he said before the global economic crisis prices in Dubai had risen higher than in New York, "which is abnormal".
Emaar's profits also declined in the third quarter, dropping by 7 per cent compared with the same period last year to Dh612m on write-downs and increasing costs.
In Abu Dhabi, property developers are facing their own steep challenges. Sorouh Real Estate, the second-largest developer, saw its profits decline by 68 per cent on the third quarter last year after it made provisions on delayed payments from land buyers and one-off expenses.
The real barometer for the capital will come this week when Aldar Properties releases its financial statements. John Bullough, the chief executive, resigned this month and analysts predict a loss for the third quarter.
Bank of America Merill Lynch said the company needed Dh9.8bn by the end of this year to continue operating. It has more than $3.8bn of debt maturing next year.
A solution to Aldar's funding woes could come in the form of a long-term loan from the Government that would be used to pay off and refinance debts, as well as helping it to continue its projects.
The Abu Dhabi Government is playing an expanding role in the capital's property sector. The law firm Al Tamimi & Company said yesterday new businesses registering in Abu Dhabi could no longer use villas as their offices. That was likely to help fill thousands of office units across the city, it added.
Developers have been forced to "reassess their schemes, scale back more ambitious projects, seek alternative means of funding and plan product more aligned to the end-user", according to a report from Jones Lang LaSalle.
The planned supply of homes will probably be cut by about 60 per cent, compared with the developments and towers announced in 2008, JLL said, adding that residential prices and rental prices declined again in the third quarter of this year compared with the previous quarter.