Before revealing who made this bold statement to the press recently, we shall understand the current situation in the Real Estate market in the United Arab Emirates and Dubai in particular.
As we all know, the oil price has dropped by more than 50% in one year affecting not only the oil giants that had to slash investments and cut jobs but also the oil exporting Countries that registered a huge public deficit in 2015. According to Bloomberg, Saudi Arabia, one of the world leaders in terms of oil production and export, has accumulated a 98 billion dollars deficit (19.5% of GDP circa) during the past year.
The fiscal deficit has been covered, in most cases, by selling assets owned by sovereign wealth funds as reported by The National, with Saudi Arabia expected to have sold 70 billion USD worth of assets and Kuwait 30 billion USD. The position of the UAE seems to be much better thanks to the diversified economy that is less depending on oil revenues and its stash of wealth that amount to a staggering 275% of the GDP.
In a persisting low oil phase, however, the GCC countries have also initiate issuing new bonds and actively using the liquidity deposited in the local bank system to plug the accruing deficits. The occasion is also favorable to introduce the VAT, as already anticipated by this blog months ago, that is supposed to be operative from 2018 as reported by Emirates24/7 and to implement subsidies cuts to water, energy and fuel as lastly happened in Saudi Arabia where the fuel price jumped by 50% as reported by SaudiGazzette.
In this context of reduced spending power, it seems inevitable that some of the projects currently going on could be affected as stated by Alan Robertson, CEO of JLL MENA, and reported by ArabianBusiness.
He said: “2016 is expected to see more challenging conditions in the UAE real estate market as we begin to feel the impact of the continuing fall in oil prices and ongoing geopolitical tensions leading to reduced liquidity and pressure on government budgets“.
Of course the wars in Yemen and Syria are destabilizing the area and contributing in the creation of additional factors of anxiety for many investors.
The media started talking about liquidity problems affecting the completion of the projects and about oversupply that was pushing down the prices like the one published by GulfBusiness, discouraging the developer to complete their projects. The news flow had a worldwide echo and articles started popping in all major newspapers.
It is at this point that Mr. Ziad El Chaar, Managing Director of DAMAC Properties, made the bold statement to the Sunday Times that he will “go on TV naked and resign” if the worst predictions about Dubai’s property market are realized this year as reported by ArabianBusiness.
Bold statement supported by the expert absolute certainty of the strong and healthy status of the Real Estate field in the Emirates.