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Dubai’s Realty Market Signs Encouraging, but Further Declines Expected
DUBAI — Commercial real estate in Dubai needs to come down further in price if the emirate is to compete effectively with other global financial hubs such as New York City, Standard Chartered bank said on Tuesday.
Standard Chartered analyst Philippe Dauba-Pantanacce argued in a report that the emirate’s commercial property market remains overvalued.
“After a fall of 30 to 40 per cent…the first signs of stabilisation in Dubai’s real estate sector have appeared, taking observers by surprise since further declines were expected,” Dauba-Pantanacce said. However, he cautioned that there are still question marks about how a possible outflow of residents from Dubai in coming months might affect property values here.
Standard Chartered noted a 2008 survey of the world’s most expensive office markets, conducted by property consulting firm CB Richard Ellis, that ranked Dubai as the seventh costliest market ahead of the City of London, Paris, Singapore, and New York.
Dauba-Pantanacce said that the CB Richard Ellis survey does not accurately reflect the advantages these other cities have, including demographic pressures and physical constraints, compared
to Dubai.
The report pointed out that the amount of distressed property on the market in Dubai has gradually diminished and that mortgage lenders have begun to ease their lending requirements. Official figures showing a net inflow of people into the country during the worst months of the crisis were “reassuring”, it said.
“One tangible sign of a marked return of investor confidence in the region is the number and success of recent bond issues, both by corporates and sovereigns,” the report added.
“Indeed, only a few weeks back, it would have been difficult to imagine that so much debt could be absorbed by the markets.”
Dubai saw its credit default swap, or CDS, spreads widen to around 1,000 basis points in February. Credit default swaps are a form of insurance against default by a borrower.
Dubai’s widening CDS spreads “had started to contaminate other regional sovereign names like Abu Dhabi, which saw its CDS start to edge up,” the bank report said.
Dubai’s CDS spreads had fallen to 510 basis points by June 5, while Abu Dhabi CDS spreads were at 250 basis points. “This has allowed market players to tap the bond market at levels that were unthinkable until recently,” the
report said.
In April, Abu Dhabi issued $3 billion of bonds with a 4 per cent coupon and five-year tenor. Qatar’s issuance of a similar billion bond was also
well-received.
Bahrain also issued bonds recently and has announced a new programme including an Islamic bond issuance for an amount just above $1 billion, while Kuwait is mulling a $5.7 billion issuance, the bank said.
“Corporate bond issuance has also seen a boom in recent weeks,” the bank said. “This appears to be continuing unabated, to the point where one wonders how much the market will be able to absorb.” — issacjohn@khaleejtimes.com
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