DUBAI, (Reuters) – Dubai property shares plunged and its biggest private developer slashed jobs this week as the global financial crisis tightened its grip on the tiny emirate, until now synonymous with the Gulf Arab real estate boom.
Dubai’s glittering skyline and luxury tourism sector have lured investors in droves over the past five years. But property prices have begun to fall, according to brokers and banks, in one of the clearest signs to date that the bubble has burst.
A real estate crash in Dubai would call into question the futures of millions of immigrant workers, many from India and Pakistan, and whether energy exporter Abu Dhabi would run to the rescue of its high-flying but poorer neighbour. “Villas that were very hot before the crisis have fallen. The buyers were chasing the sellers but now it’s the other way round,” said Quaid Abbas, property consultant at Engel & Volkers. “Small real estate companies are going to close down.”
Secondary prices in Dubai and Abu Dhabi fell 4 to 5 percent, with Dubai’s advertised villa prices falling by 19 percent month-on-month in October after several banks tightened lending conditions in August and September, HSBC said.
Apartments in the Dubai International Financial Centre, the nexus of the banking and investment sector, fell as much as 30 percent, it said.
Rehab Gouda, senior sales agent at Al Jabal Real Estate, said that property prices had fallen 30-35 percent in Dubai since September.
A three-bedroom villa in the unbuilt Jumeirah Park project, a sought-after area of the seaside emirate, which was worth around 4.8 million dirhams ($1.3 million) in August, is now valued at roughly 3.8 million dirhams, she said.
“The market is going through a tough time,” said Sana Kapadia, associate equity research at EFG-Hermes in Dubai.
“Whether or not it is the end of the market, remains to be seen.”
Times are certainly tough for the real estate sector with shares tumbling this year due to the crisis and a number of highly publicised investigations into alleged corruption.
Emaar Properties EMAR.DU, the region’s largest property developer by market value, fell 5.6 percent on Thursday to mark a drop of over 80 percent this year. Union Properties UPRO.DU, which has dropped around 78 percent during 2008, fell 6.7 percent.
Scaled-back projects and job cuts among developers provide more evidence that the financial crisis has hit Dubai, which boasts man-made palm islands, an indoor ski resort and the world’s tallest building.
Emaar said on Thursday it was reviewing its jobs policy after Damac Holding, Dubai’s largest private property developer, said earlier this week it was cutting 200 jobs, or 2.5 percent of its workforce.
The cuts follow news that developers are scaling back projects as funding becomes harder to secure.
State-owned Nakheel said recently it was slowing down on dredging work on its massive Palm Deira project, the largest of three palm archipelagos that, when completed, is planned to house more than 1 million people.
While soaring inflation has triggered civil disturbances in Dubai in recent months, a property collapse could trigger the same if the government decides to ship home thousands of labourers who climb scaffolding and pour concrete every day.
Dubai’s ambition to be a regional economic hub would also be dented by a property crash, though some are optimistic that Abu Dhabi would intervene and that long-term growth prospects for the region would support the financial sector.
“Dubai appears to be able to continue to attract people and talent and this looks poised to maintain its standing as a regional power house,” Kapadia said.