On the surface, Dubai is plowing ahead with the kind of ambitious, eye-catching projects that turned the sheikhdom into the Persian Gulf’s business hub and playground. At the tip of its palm-shaped island, a swimming pool suspended between two towers will hover 170 meters (560 feet) above the ground. Closer to the city center, “water homes” on stilts will line an artificial canal dotted with floating restaurants and gondolas.
But the din of cranes and earth-moving equipment hides a growing sense of restraint among the city’s developers as persistently low oil prices undercut spending power across the region.
“You really don’t know the future anymore,” said Mohamed Alabbar, chairman of Emaar Properties PJSC, which built the world’s tallest tower in Dubai. “You have to do business on your toes and be cautious because the environment is changing all the time.’’
While more new developments were announced this year than in 2015, many were done with ambiguous time frames and greater flexibility in terms of size. The Mall of the World project, scaled down from an original plan to include 100 hotels and the biggest shopping center, was moved for the third time in August and developer Dubai Holding didn’t disclose an expected start date.
“There are still projects being built for niche demand such the ultra-luxury towers,’’ according to Downs. “But as job growth remains slow, it’s unlikely to demand will recover significantly for most of the properties being built which cater to mid-high and high-end buyers.’’
Palm 360, the towers with the suspended pool, is aimed at very wealthy buyers. The building’s first 19 floors are set to be a luxury hotel, while the levels above the pool will include penthouses as large as 12,000 square feet (1,100 square meters), developer Nakheel PJSC said without disclosing prices.
Even Nakheel, which also built the Palm Jumeirah artificial island where the hotel will be located, is striking a note of caution as the company waits for the market to rebound.
“Our priority is to enhance recurring income, so we will be launching niche projects, but our focus mainly on enhancing our portfolio,” Nakheel Chairman Ali Rashid Lootah said in an interview on Sept. 6. “Most of our products are at the high-middle income and we see prices still stable. I think with time, the regular buyer will come back.’’
Downs of Phidar expects home values to drop unless oil prices recover significantly or the U.S. dollar, to which the dirham is pegged, weakens. That follows an average decline this year of 7.5 percent for apartments and 6.7 percent for single-family homes, according to Phidar’s data. Rents have also fallen by 7.6 for apartments and almost 9 percent for houses.
This isn’t the first time Dubai has had to scale back its ambitious projects. The city suffered one of the world’s worst property crashes in 2008 after years of fervent construction fueled by debt and speculative buyers. Projects worth billions of dollars were canceled and delayed, including Dubai’s biggest man-mad island in Jebel Ali. Since then, the country’s central bank tightened lending rules and the city doubled property sales taxes, helping squeeze out speculators and driving demand from residents.
Emaar’s Alabbar adopted a restrained tone even as he announced plans to construct 3,000 homes over the next four years as part of an area developed around a new airport. The company’s shares have gained about 25 percent this year.
Developers “check the market first and they check their financial ability’’ Alabbar said. And if demand isn’t there “they scale them down. We are still doing relatively quite well compared with 2015. We are surprised that we are doing better.’’
Most residential projects won’t be completed before 2020 because the market is well supplied for the next few years and “developers are recognizing that it can’t absorb anything sooner,’’ according to Craig Plumb, head of Middle East research at broker Jones Lang LaSalle Inc. “I think we’ve reached the bottom, but I’m not expecting a rapid increase within the next six months.’’
Developers are also thinking of inventive ways to spur demand. Damac Properties Dubai Co. PJSC, which is building a golf club with Donald Trump in the emirate, is lobbying the Land Department to build a property mall that would showcase mock-ups of all the developments being built in the city, according to the firm’s managing director, Ziad El Chaar.
He said that many of those buying vacation homes decide to do so after coming on holiday. He also is trying to convince banks to lobby the central bank into allowing no-questions-asked non-resident mortgages, he says.
Dubai’s home buyers mainly come from the rich Persian Gulf countries of Saudi Arabia, Kuwait, Qatar, Bahrain and Oman all of which are feeling the pinch from lower oil prices. There are fewer buyers from the Gulf along with others from India and the U.K., which used to be strong buyer markets for Dubai.
“Dubai will tell you we don’t depend on crude revenue directly,’’ said Sanyalak Manibhandu, an Abu Dhabi-based analyst at NBAD Securities LLC. “But everybody around Dubai basically makes money and creates wealth from crude and related industries.”