Threat of defaults begins to haunt

|By Arabian Post Staff| A sudden spurt in the number of new project announcements despite the weakening sentiments and a clear downturn in property prices is stoking fears of a 2008-style default revisiting the Dubai property market.

The phase has even seen the revival of some of the grandiose schemes announced during the peak of the boom period, but got abandoned later as the crisis began to bite.

Analysts say that the frequency of new announcements betrays a certain sense of desperation on the part of some developers with heavily leveraged positions to try and retrieve their situation. As it happens in most such cases, this could lead to some of them going under and abandonment of projects under construction.  With credit cycles turning ever more tough and funding becomes impossible, the spectre of skeletal structures dotting the skyline, reminiscent of the 2008 crash, is becoming more real.

New tough regulatory initiatives and structural changes may have somewhat limited the impact of a repeat crash, but the continued slump in sales volumes and demand is not at all reassuring, particularly in view of the overall depressive market outlook throughout the region due to the fall in oil prices and supply glut.

According to Cluttons, residential prices have fallen 50 percent from the 2008 peak, suffering a second downturn beginning in early 2010. Although prices rebounded following the influx of money and people displaced by uprisings in several Arab countries, values started slipping again from 2014. CBRE has reported a 15-percent decline in prices and is predicting another 10 percent drop this year. On the other hand, there has been a consistent addition to the supply of new units, with the spectre of oversupply beginning to haunt the market.

Borrowing costs for developers have already doubled in recent times in view of the overall economic condition in the region. Analysts feel that it is a matter of time before banks cut credit lines to developers, especially those who do not have the clout of established players like Emaar Properties or Nakheel. Such a situation would imply a return to the post-2008 scenario, the memories of which all the stakeholders of the property market are still struggling to put behind.