Dubai Sees Real-Estate Leading Growth 7 Years After CrashNafeesa Syeed
Dubai expects real estate and construction will probably drive economic growth in 2015, seven years after a crash in property prices brought the Gulf emirate to the brink of default.
The emirate’s economy is expected to grow 4.5 percent next year from an estimated 4 percent in 2014, the Department of Economic Development said in a presentation yesterday. Real estate and construction may expand about 6 percent each. Preliminary forecasts for 2014 show the property sector will grow 3.5 percent.
Dubai, the second-richest sheikhdom in the United Arab Emirates after Abu Dhabi, is home to the world’s tallest skyscraper and largest airline by international traffic. The emirate has relied on tourism and hospitality since the 2008 real-estate crash. Property prices rebounded last year, prompting authorities to take steps against speculation, including measures to curb mortgage lending and doubling the transaction tax.
Sheikh Ahmed Bin Saeed Al Maktoum, head of Dubai’s supreme fiscal committee, said the government is “on alert against volatility in the real-estate market, while factoring the positive contribution of this sector to economic development in Dubai and in meeting real demand.”
Capital spending is expected to remain steady for 2015, though it may slow in the following year if oil prices don’t recover, said Mohamed Lahouel, the department of economic development’s chief economist.
“What has already been started in terms of economic projects will continue,” he said. If “oil remains at something like $65 per barrel, then capital projects will start to suffer.”
Digvijay Singh, an analyst at Renaissance Capital in Dubai, predicted the real estate sector would decline in 2016, if not next year, saying oil prices are unlikely to recover to $110 a barrel in 2015.
“New project announcements and the inventory buildup in the real estate sector should see a sharp slowdown,” Singh said. “To assume 2015 will not see any slowdown at all, I think would be a bit optimistic.”
In addition, Singh forecast “collateral damage” to other sectors that depend on real estate.
Going forward, construction should continue to be a key growth driver, but residential real estate and hotel sectors will depend on supply and demand dynamics, said Monica Malik, chief economist of Abu Dhabi Commercial Bank.
“Any development of an oversupply in the medium-term could moderate subsequent growth,” Malik said by phone yesterday.
Oil has slumped 44 percent this year as a surge in shale drilling lifted U.S. output to the fastest pace in three decades amid slowing world demand growth. Leading members of the Organization of Petroleum Exporting Countries such as Saudi Arabia and the U.A.E. have resisted calls from smaller producers to reduce quotas to stem the price rout.
Dubai could benefit from the oil-price drop as transportation costs retreat.
Emirates Airline tickets are expected to “go down quite a bit over the next few months,” said Lahouel, the economist. “For Dubai, this is likely to increase the number of travelers.”