Property oversupply grows in the UAE, set to reduce prices again
At night looking back at the Jumeirah Lake Towers from a vantage point at the Montgomerie Golf Club the unlit towers amid this collection of new Dubai skyscrapers is a reminder that the inventory of unused new accommodation continues to grow as the city completes its building projects.
Dubai Holding subsidiary Dubai Properties has reported an increase in its inventory of rental units from 18,000 to 27,000 over the past year. How many of these new units are unsold apartments that are now available for rental is unclear but many must be unplanned inventory additions.
Abu Dhabi completions
Even in supply starved Abu Dhabi the first deliveries of freehold property are about to commence. Reem Island master developer Tamouh is to start handing over 3,440 units in its Marina Square towers just behind Abu Dhabi Mall this May. On completion Mariana Square will be home for more than 8,500 residents.
In the summer rival Sorouh plans to deliver 1,154 apartments and 39 floors of offices in the Sun and Sky towers on Reem Island, according to a report in Gulf News today.
For Abu Dhabi absorbing new accommodation will not be a problem. Indeed, this will be more of a problem for neighboring Dubai from where many workers currently commute. When they leave New Dubai for new apartments in Abu Dhabi that will create additional voids in a city where the excess supply of apartments is mounting by the day.
It is impossible to determine how many more apartments will be added to inventories in Dubai before the buildings of the boom are completed, or indeed how many of these buildings will be actually completed and not abandoned. Certainly forecasts of 10-25,000 over each of the next two years do not look wide of the mark.
You can actually see this inventory standing empty now, and there is nothing to suggest that the problem will not get worse before it gets better. The UAE is expected to show very modest GDP growth this year after the recession of 2009. There will not be enough new residents to fill up all the empty properties, although internal migration towards new real estate will be important.
The impact on real estate prices of a rising supply and falling demand will no doubt be further falls in rental and sale prices. But the reaction to the global economic recession last year was so strong in the UAE – with house prices tumbling 50 per cent in Dubai – that the scope for a further slump is limited.
Indeed, at some point in the near future UAE property prices will reach a bottom. Typically stock markets bottom more quickly than real estate, and property price declines do not last much longer than two years. Given the long-term future of this oil-rich country real estate then ought to be a good buy.