Builders bruised by Dubai's real estate market woes

Dubai’s real estate downturn is forcing construction and engineering firms to cut jobs and halt expansion plans, in turn raising fresh risks for the wider economy. Known for its glittering skyscrapers and luxury villas, the Dubai property market is oversupplied, especially in the residential sector where prices have fallen steadily from a peak in mid-2014. Many towers stand half-empty, and some construction sites have been left dormant. “We stopped expansion,” said Samer El Achkar, chief executive of Al Qabdah, which built the Kempinski Hotel on the man-made Palm Jumeirahisland. Al Qabdah culled 10 percent of its roughly 7,400 workforce in June. “We are trying not to reduce our employees but when we complete or deliver a project we let go of some employees if we don’t need them in other projects,” El Achkar said. A diplomatic row with former ally Qatar and sanctions against Iran, a major trading partner, have curbed foreign demand for property, while a new value-added tax has dragged on the domestic economy. An analysis of data from the Dubai Land Department (DLD) showed a 76 percent jump in the number of delayed developments and sales of villas and flats between 2016 and 2018. The DLD told media that 865 developers were registered with the department in 2018 but that only one in four had projects currently active. BNC, which provides news and data on the construction industry, estimates the value of delayed projects at $126.3 billion in 2018, up from $107.6 billion in 2017 and equivalent to about 16 percent of all projects this year. The DLD declined to give “private data” on struggling projects. While real estate schemes flounder, road and other core infrastructure projects backed by the government are going ahead as Dubai prepares to host the World Expo 2020 fair, expected to attract 25 million visitors. RaedSafadi, chief economic adviser at Dubai’s department of economic development, told media: “Investments targeted at Expo 2020 and beyond have given a fillip to the construction sector that continues to exhibit healthy growth rates, while at the same time increased supply in the market is putting cyclical pressure on the real estate sector.” Projects are often dogged by stalled payments from developers, long a headache for builders in the region but one that has become worse as banks have become reluctant to extend more credit to the sector. KrisjanisKrustins, a director in the Middle East and Africa team at Fitch Ratings, said he had “yet to hear a coherent thesis” for how Expo 2020 would sustain economic growth.