Dubai developers keep building despite weak market and echoes of 2008 - By Matt Smith

Buildings that are under construction are seen in Dubai, UAE March 7, 2016. REUTERS/Ahmed Jadallah

DUBAI (Reuters) - Dubai developers are pressing ahead with their construction plans despite expectations that property prices will fall yet further this year, undaunted by memories of a 2008 crash.
Industry consultants say that while sales volumes have slumped in the emirate, structural changes to the market such as tighter regulations together with fewer speculators and developers should ensure a much softer landing this time.
But others worry about ripple effects from the dive in oil prices, even though Dubai is a small crude producer compared with fellow emirate Abu Dhabi, and wonder how all the projects that are being announced will be funded.
Dubai property prices have been more volatile in the past decade than in other centres.
(GRAPHIC: House prices in Dubai, London and Singapore: http://reut.rs/1RnHt8d)
Residential prices in the emirate fell 50 percent from a third-quarter 2008 peak to mid-2009, suffering a second downturn in early 2010, industry consultants Cluttons estimate.
Prices then rebounded from 2011 following an influx of money and people displaced by uprisings in several Arab countries, recovering to within 18 percent of 2008 peaks.
But values slipped again from late 2014. Cluttons reckons they fell 3-5 percent in 2015 and forecasts a similar drop this year; rivals CBRE say prices declined about 15 percent last year and predict another 10 percent drop in 2016.
This seems to have swayed developers little.
Emaar Properties says it will not change its plans despite sales revenue falling 28 percent to 7.51 billion dirhams ($2.04 billion) in the first nine months of 2015.
"Emaar is progressing as scheduled with all its projects launched," said a spokesman for Emaar, builder of the world's tallest tower, the Burj Khalifa.
The company, one of four big players in the Dubai market, has a backlog of projects worth 24.1 billion dirhams in the wider United Arab Emirates.
"Sales enquiries have continued to be robust, led by strong interest from regional and international investors," said the spokesman.
ECHOES OF 2008
Property markets can be driven as much by sentiment as supply and demand, so such overt bullishness is perhaps understandable. However, it ignores a 19 percent decline in Dubai unit sales and a 24 percent drop in the combined sales value in 2015, CBRE estimates.
It also echoes 2008 when that October the developer Nakheel announced plans to build a kilometre-high tower, which at almost 200 metres more than the Burj Khalifa would be a global record.
Barely a year later, Nakheel sought to restructure about $11 billion in borrowings and property prices were in free fall. Today a Dubai metro station is named after the lofty project, but the tower has yet to materialise.
Dubai has doubled property transaction fees and imposed tougher deposit requirements for mortgage borrowers. While this has helped to prompt the current downtrend, inflicting such short-term pain may ultimately lessen volatility by minimising speculative trading.
This marks a significant change from 2008. "The dynamics of the market this time around are vastly different ... The fundamentals are a lot stronger," said Faisal Durrani, partner and head of research at Cluttons.
DAMAC Properties, Dubai's largest independent developer, also says it has not slowed construction as there is demand waiting to be met.
"There will continue to be an under-supply of completed units in the market; based on Dubai's economic growth, demand should outstrip supply," said a DAMAC spokesman. "It's very much business as usual."
Dubai officials have remained optimistic on economic growth in the emirate which has diversified into areas such as tourism more than larger oil exporters. In December, a government official estimated 2015 growth at around four percent, close to levels of recent years.
However, the UAE has said it will be hard to achieve growth of more than three percent across the emirates this year.
The spectre of over-supply still haunts the property market after the crash, which was partly due to an abundance of units being completed almost at the same time.
To avoid a repeat, developers are widely thought to delay handing over units when they are completed, although of course this means they get no money from them until a sale goes ahead.
Over the last five years only about 35 percent of residential units slated for handover in a given year were delivered to buyers, consultants JLL estimates, with sales delayed until subsequent years. OIL IMPACT Oil is thought to constitute only about 4-5 percent of Dubai's economy, but the effect of the crude price slump will be greater than this figure implies.
"There's a ripple effect (into) office demand, the amount of trade hotels get, business activity, amount of flights, retail spend," said Alan Robertson, JLL's MENA chief executive. Lower oil receipts have tightened liquidity. Government deposits in the UAE banking system fell by 56 billion dirhams in the 12 months to September 2015, National Bank of Abu Dhabi reported.
"This will have a direct impact on the mortgage market, which is already very restrictive," said Clutton's Durrani.
Project funding is likely to be a problem this year.
"There are a lot of new projects being announced but where are they all going to get the money from?" said Craig Plumb, JLL MENA Head of Research.
Of the four developers that dominate in Dubai, three - Emaar, Nakheel and Dubai Properties – are ultimately state-controlled, making it easier to coordinate supply.
Currency fluctuations are another factor. Foreigners accounted for four-fifths of the combined value of Dubai property purchases in 2015, CBRE says, with Indians, Britons and Pakistanis among the biggest non-Emirati buyers.
The dollar, against which the UAE dirham is pegged, has gained about a fifth versus the euro and sterling since mid-2014. The Indian rupee has likewise lost ground.
This has made Dubai property more expensive for potential buyers with money in those currencies, but has also offset the drop in values for existing owners from those currency zones.
"People who really want to sell are willing to accept considerably lower prices," said Alexander von Sayn-Wittgenstein, sales director at luxury property broker Luxhabitat.
"The official price may be the same but when a buyer makes an offer that is much lower, the seller is more flexible and will likely accept a price they wouldn't have a year ago."
Gulf property markets have generally weakened although Dubai is most volatile because it has made the biggest gains.
"The underlying factors are broadly the same - such as oil prices, lower state spending and the need for governments to raise taxes which will add to inflationary pressures," said JLL's Plumb.

Most analysts predict Dubai's hosting of the Expo 2020 exhibition will help the residential market bottom out over the next 12 months. Demographic trends are also favourable, with the city's population forecast to double to 5 million by 2030.

If correct, this will help construction. "We (would) need another city the size of current Dubai," said Durrani. "This suggests that Dubai's development story still has a long way to go."
(editing by David Stamp)

Culled from Reuters

Oil jumps as traders close short positions, U.S. producers cut rig count - By Henning Gloystein

A man walks past "Amic" fuel stations displaying prices of 0.77 USD and 0.81 USD per litre …

SINGAPORE (Reuters) - Oil prices jumped on Monday, extending a rally that has lifted crude benchmarks by more than a third from this year's lows, as tightening supply and an improving global outlook strengthened the sentiment for a market recovery.
Front-month Brent crude futures were trading at $39.42 per barrel at 0620 GMT, up 1.8 percent from their last settlement and over a third higher than their January low, when prices fell to levels not seen since 2003.
U.S. West Texas Intermediate (WTI) futures were trading at $36.59 a barrel, up 67 cents from the last close and 40 percent above February lows.
"It looks at this stage as if it (oil) has formed a little bit of a bottom and perhaps we're going to see a sustained price in the $30s, maybe trending back up to $40 dollars at some point," said Ben Le Brun, market analyst at OptionsXpress.
"The macro picture takes all corners of the globe into account, and those corners seem to be improving ... and that's where I'm seeing the oil price tick higher."
Analysts said that strong U.S. payroll data had pushed markets on Friday and early Monday, but that attention was now shifting to China where the National People's Congress opens its annual session this week.
On the supply side, U.S. energy firms cut oil rigs for an 11th week in a row to the lowest level since December 2009, data showed on Friday, as producers slash costs.
Drillers removed eight oil rigs in the week ended March 4, bringing the total count down to 392, oil services company Baker Hughes Inc said.
Beyond a tightening supply outlook, traders said that shifting sentiment was also lifting prices as large amounts of short positions were being closed and bets rising prices opened.
Ric Spooner, chief market analyst at CMC Markets said "there's a good prospect that Brent could hit $40 ... (it) could easily do it in the next trading session."
Despite the recent price rises and the generally more bullish outlook, analysts warned that the general glut remained in place and prices could still drop back.

"Upside should be limited by bloated global inventories and producer hedging. Moreover, we worry that this latest oil bounce shares many features of the 2Q15 false oil rally," Morgan Stanley said on Monday.

(Additional reporting by Manesha Pereira; Editing by Joseph Radford and Tom Hogue)

Culled from Reuters

Crude prices climb after U.S. oil output falls for sixth week

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View photo

People walk past "Lukoil" (L) and "Statoil" fuel stations displaying prices 1,125 USD and 1,136 USD per litre of basic unleaded petrol during falling global oil price at a foggy winter day in Limbazii, Latvia, January 25, 2016. REUTERS/Ints Kalnins

By Keith Wallis

SINGAPORE (Reuters) - Crude futures rose in Asian trade on Friday, buoyed by renewed optimism prices may have bottomed out after official U.S. data showed oil production fell to its lowest level since November 2014.
Brent futures had risen 21 cents to $37.28 a barrel as of 0627 GMT, after settling 14 cents higher in the previous session. The crude benchmark is set to end the week with a gain of more than 5 percent.
U.S. crude futures had climbed 20 cents to $34.77 a barrel, having settled down 9 cents in the previous session.
While U.S. crude inventories rose to a new record of 517.98 million barrels last week, output fell for a sixth straight week to 9.08 million barrels a day, according to data from the U.S. government's Energy Information Administration.
Cuts in U.S. production are providing price support, but investors are also waiting for key U.S. economic data later on Friday to give further direction, said Ben Le Brun, market analyst at Sydney's OptionsXpress.
"A lot of traders are keeping their powder dry in front of non-farm payroll data - it's the No.1 (indicator) in terms of crude consumers," he said.
"Investors are a little more confident we've seen a bottom in oil (prices)," he added. Le Brun is forecasting oil prices will hover around $40 by the middle of this year.
Positive numbers for both February payrolls and U.S. jobs data, both due at 1330 GMT on Friday, could maintain the momentum of higher oil prices, Le Brun said.
"With the recent strong US economic data, it is very unlikely that non-farm payrolls would underperform. We expect this to give markets more confidence in the U.S. economy," Singapore's Phillip Futures said in a note on Friday.
Rising oil prices this week are helping steer Asian shares towards what will likely be their strongest week in five months, with the MSCI index of Asia-Pacific shares outside Japan on track to climb 5.4 percent for the week.
Japan's Nikkei (.N225) is poised for a weekly gain of 4.7 percent.
Further cuts in U.S. output are possible in the coming months.
"The tight credit market will make it difficult for U.S. shale producers to refinance upcoming debt and we may see an accelerated decline in U.S. oil production in 2016-17," ANZ said in a note on Friday.

The decline in U.S. production will fuel a 1.5-percent drop in oil supply by non-members of oil producers' cartel OPEC this year, the first year of non-OPEC negative supply growth since 2008, Paul Bloxham, chief Australia economist at HSBC said in a report on Friday.

Non-OPEC supply is forecast to fall by 850,000 barrels a day this year, of which 760,000 barrels will be cut from U.S. production.

HSBC, which kept its price forecasts unchanged, assumed an average Brent price of $45 a barrel this year, rising to $60 in 2017 and $75 thereafter.

(Reporting by Keith Wallis; Editing by Richard Pullin and Biju Dwarakanath)

Culled from Reuters