Day of Reckoning dawns for Dubai property developers

As the Dubai debt crisis of the past few weeks has clearly demonstrated there is a Day of Reckoning dawning for UAE property firms. The state-of-denial is over and it is time to face up to the reality of the Dubai real estate crash that is easily the worst in the world.

Hopes for a swift consolidation of the Dubai property sector have been dashed with Emaar Properties clear rejection of a merger proposal with Dubai Properties. Yesterday shares in Union Properties and Deyaar slumped on news that their merger is also off.

Consolidation off

The hope was that consolidation would result in a leaner and more profitable sector, and put a check on the upcoming supply chain. Oversupply now threatens to keep prices under pressure for another 18 months, according to local estate agents.

New property completions are daily news. Damac yesterday proudly trumpeted the topping out of its 84-storey Ocean Heights tower in the Dubai Marina (pictured above). When finished this one tower alone will add 680 apartments to the Dubai inventory, and it is surrounded by towers of similar height that are still soaring upwards.

And while it is certainly a positive to see that stories about the financial condition of some private contractors appear to be unfounded, the overbuilding is another issue. For how much property can the UAE absorb with its economy still spluttering from the unexpected recession this year?

Empty towers?

Those developers still proceeding with large projects are gambling that the market will be greatly improved when their towers are completed. If they stay empty and buyers default then the balance sheets of the developers and their bankers’ patience will be sorely tested.

For the moment it is the state-owned realty companies Nakheel and Limitless that are the focus of the resolution of the Dubai debt crisis. But there are many concerns about the other players whose debts are less but whose challenges are just as big in a falling market.

The good news is that by the end of 2010 the position should be much clearer, with the original Debt crisis resolved and the position of the other players better known. But this is a Day of Reckoning that can not be avoided.