Face-to-face: Property supply in Dubai and Bahrain
Could we see more project cancellations in the two Gulf hotspots?
Ron Hinchey, Cluttons director and Royal Institution of Chartered Surveyors UAE board member
R Lakshmanan, CEO of Bahrain-based Islamic mortgage provider Sakana Holistic Housing Solutions
Have we seen an end to speculative property investment?
Ron Hinchey: During the boom years, over 80% of apartments and 60% of villas were purchased by speculators who are now hoping to exit the market. We have therefore witnessed the end of bulk purchase off plan speculation. But we have seen the emergence of the “vulture fund” to take advantage of distressed positions caused by the downturn providing an opportunity for cash rich speculators.
R Lakshmanan: I wouldn’t say an end because markets go through cycles and speculative investors will eventually come back. It all depends on how badly they were bruised. In years to come we will see a new set of speculators come in, although to get back to the same levels as we’ve seen in the last five years, particularly in Dubai, will take a very long time.
Have we seen an end to high end residential developments?
RH: Off-plan high-quality projects in the past months have experienced price declines, and in the foreseeable future, demand for such a product is likely to be minimal. Lenders are reluctant to finance off-plan and many have self imposed lending limits of less than AED10 million, further impacting high end purchases. Landmark projects will continue to attract low volumes of cash rich investors.
RL: At this point in time developers are certainly relooking at high-end residential properties. I can understand that from a developer’s point of view the high-end was probably giving them fatter margins. Since the middle income sector was not addressed enough it’s created a lob-sided market. Many developers will now move to the middle income and low end of the market.
When current projects reach maturity, will the market be saturated with high end residential?
RH: The major developers will likely complete projects currently under construction, albeit in an extended phasing programme, with off-plan development largely on hold, so reducing future anticipated delivered stock to the market. High end demand is difficult to quantify in terms of future demographics and the impact of price limitations on bank loans. We may have a clearer picture by the end of the year on the demographic issue.
RL: There will be some kind of saturation in Bahrain definitely, with so many projects of a similar nature coming onto the market. It boils down to a number of factors including how markets recover across the world because that will determine levels of liquidity. The number of expatriates leaving will also have an effect. At the moment there are many high-end projects going ahead in Bahrain, but there will come a point of resistance.
Could we see more project cancellations or is the worst over?
RH: In Dubai, this area is currently under review by Rera although the majority of decisions to cancel off-plan projects have probably already been taken by developers. Off-plan lending issues and the lack of transparency between developers and investors on project cancellations is a minefield.
RL: I don’t think the worst is over. We have been hearing that some projects are going to be cancelled – obviously I can’t quote names – but I think there will be more to come. It won’t be on the scale of the UAE but more cancellations and redesigns would not be a surprise because that is the right thing to be done in this current market.