Dubai faces a ‘disaster’ from overbuilding, top developer says

Skyline of Dubai. (iStock)
Skyline of Dubai. (iStock)

Dubai needs to halt all new home construction for one or two years to avert an economic disaster brought on by continued oversupply, according to one of its biggest builders.

“We’re entering a crossroads now,” Damac Properties PJSC Chairman Hussain Sajwani said in a Bloomberg interview.

“Either we fix this problem and we can grow from here or we are going to see a disaster.”

Damac’s chairman is the latest executive to call for curbs on construction in a market that’s been on a downward trajectory since it peaked five years ago. The slump has defied all predictions of a rebound as house prices fell around 30%.

About 30,000 new homes will be built this year, twice the demand in the Gulf city, property broker JLL estimates.

Damac has dramatically reduced new sales in the past two years and will focus on selling the properties in its inventory, Sajwani said. Still, the developer will complete 4,000 homes this year and an another 6,000 in 2020.

“All we need is just to freeze the supply,” Sajwani said. “Reduce it for a year, maybe 18 months, maybe 2 years,” he said.

Bank Risks

Sajwani warned that ignoring the oversupply could spell trouble for the city’s banks. The declining value of homes would inevitably lead to growing bad loans and higher provisions against default, hitting profitability.

Dubai has recently created a committee to limit supply and ensure that private developers operate in fair environment.

“The domino effect is ridiculous because Dubai’s economy relies on property heavily,” he said.

Sajwani pointed at his competitor Emaar Properties PJSC as the main culprit in the oversupply and said the company offers payment plans that encourage speculation.

The majority of other big developers, including Meraas Holding LLC and Nakheel PJSC, have halted new construction or cut it back by about 80%, while Emaar continues to “dump” properties on the market, he said.

Damac’s share price has fallen 40% this year and the company won’t pay dividend this year because profitability is down. Sajwani said he prefers to keep the cash in the company to meet financial obligations.

Emaar, which built the world’s tallest tower in Dubai, declined to comment.

Emaar’s website shows a long list of its latest developments, including Arabian Ranches III, Dubai Creek Harbour and Emaar South. The developer has also joined forces with divisions of state-owned builders. Dubai’s government owns about 29% of Emaar.

ZAR/USD
16.77
(+0.10)
ZAR/GBP
21.00
(+0.51)
ZAR/EUR
19.06
(+0.08)
ZAR/AUD
11.66
(+0.04)
ZAR/JPY
0.16
(+0.42)
Gold
1799.58
(-0.14)
Silver
19.00
(-0.43)
Platinum
828.00
(+0.18)
Brent Crude
42.17
(-1.20)
Palladium
1973.00
(+1.13)
All Share
55270.84
(-1.65)
Top 40
50995.88
(-1.69)
Financial 15
10516.36
(-1.75)
Industrial 25
75447.32
(-1.90)
Resource 10
52633.11
(-1.30)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
Results
I'm not really directly affected
18% - 2040 votes
I am taking a hit, but should be able to recover in the next year
23% - 2654 votes
My finances have been devastated
35% - 3987 votes
It's still too early to know what the full effect will be
25% - 2859 votes
Vote