Luxury Property in Dubai – Downturn “Worse than Expected” says Morgan Stanley

The latest Morgan Stanley UAE property sector report is out and is not pretty reading. “Fallen off a cliff,” and “Worse than expected,” are not words one usually associates with the Dubai luxury market. So if Morgan Stanley have come clean, it might actually be accurate. The issue with Dubai is always lack of transparency and even MS are resorting to “anecdotal evidence,” of which there is no shortage.

Around $263 billion worth of real estate projects have been delayed or canceled as the UAE’s property sector is dealt a “worse than expected” blow by the global financial crisis, according to their report.

HSBC research reported recently that cancellations had reached $75 billion in Dubai alone, but a Morgan Stanley spokesperson said HSBC had failed to include three further large projects in its assessment.

Some of the project cancellations that have been officially announced are Sunland Group’s $654 million Atrium project and the $790 million Trump Tower project by Nakheel on Palm Jumeirah. Prices are falling dramatically as the sector is hit by job losses and project delays. A few choice quotes:

“Real estate prices in UAE capital Abu Dhabi are down by an average of 20% since a peak last summer as the UAE’s property sector is hit particularly hard by the global economic situation.”

“Residential property prices in Dubai have also fallen, by 25% in the last 4 months alone, with high-end real estate units taking the biggest hit.”

“Since September, Dubai apartment prices have fallen 25% and villa prices are off 26%, “belying the argument of some developers about the price resilience of villas and low-rise building segment.”

“Anecdotal evidence suggests sharp falls in transaction volumes in the fourth quarter due to deteriorating economic conditions, the disappearance of speculative buying and the lack of financing.”

“Prices of high-end Dubai properties including those at the Burj Dubai development that includes the world’s tallest tower, which reached its final height last week, as well as the man-made Palm Jumeirah are down 35% since their peak”

Emaar Properties is likely to be the “worst affected” among Dubai developers by the sudden plunge in prices.

“We believe that Emaar runs a high risk of sales returns and defaults among its recent launches.”

“The company’s high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak.”

Many analysts are predicting further falls in prices in 2009 for luxury property in Dubai, Khajeel Times is suggesting 50%, The Global Financial house only 30%.