|27 October, 2019

Top Dubai developer cautions against 'disaster' triggered by oversupply

"We're entering a crossroads now. Either we fix this problem and we can grow from here or we are going to see a disaster."

Image used for illustrative purpose. The skyscrapers in Dubai, United Arab Emirates.

Image used for illustrative purpose. The skyscrapers in Dubai, United Arab Emirates.

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Dubai has to stop all new residential construction for one or two years to avoid an economic disaster triggered by continued oversupply, Damac Properties Chairman Hussain Sajwani said in a Bloomberg interview.

“We’re entering a crossroads now. Either we fix this problem and we can grow from here or we are going to see a disaster,” Sajwani said.

“All we need is just to freeze the supply. Reduce it for a year, maybe 18 months, maybe 2 years,” Sajwani, one of the biggest builders in the emirate, was quoted as saying.

Dubai’s housing market remains "oversupplied" in spite of the drop in prices over the last few years, investment firm UBS Global Wealth Management said in its report earlier this month.

According to property consultants JLL, about 30,000 new homes will be built this year, twice the demand in Dubai.

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

According to Sajwani, not dealing with the issue of oversupply could cause trouble for Dubai's banks as the reducing value of residential units will lead to a surge in bad loans and higher provisions against default.

On Thursday, the UAE Central Bank released its proposed frame work for banks on the industry's exposure to the real estate sector, noting that exposures above a set threshold will be subject to additional regulatory requirements. 

The primary objective of the proposed framework is to enhance financial stability by re-designing regulatory measures aimed at exposures of banks to the real estate sector.

Earlier this month, in a move to ease home mortgages, the central bank directed banks to replace the 3 percent early settlement fee that was introduced in 2018 with one percent of the outstanding balance, or 10,000 UAE dirhams.

"There is a draft paper for real estate lending with the UAE Banks Federation (UBF) and the banking sector which will review and give feedback to have a proper policy in lending cap for the real estate sector," said Abdul Aziz al-Ghurair, head of the United Arab Emirates Banks Federation, on the sidelines of a conference last Monday.

"This is to protect the whole economy, you can’t have all your lending in one sector. If the sector is impacted, the whole banking industry gets impacted, this is a prudent decision," he added.

(Writing by Seban Scaria seban.scaria@refinitiv.com, editing by Daniel Luiz)

© ZAWYA 2019

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