(Bloomberg) -- Three years ago, Mark Mobius saw his luxury apartments in Dubai go up in flames. While the suites have by now been restored to their old splendor, the investor has something else to worry about: the frenzy of construction that’s adding to the existing glut in real estate.
The downturn “will get much worse from here,” said Mobius, a pioneer in emerging-market investing, adding he’d hold off on buying more property. “I would probably want to wait until there’s a real slump when all this new building comes in and people are really hurting.”
Prices and rents have already dropped by as much as a third in the past five years during what S&P Global (NYSE:SPGI) Ratings has called the property market’s “long decline.” The slump will run for another 12 to 18 months because government measures to stimulate the economy -- including granting long-term visas which benefit the affluent and people with specialized expertise -- won’t be enough to revive demand, said Lahlou Meksaoui, a Dubai-based analyst at Moody’s Investors Service.
Mobius recalls how he watched on television from Singapore as revelers in Dubai rang in 2016 with fireworks shooting off the iconic Burj Khalifa. Just steps away from the world’s tallest building, flames were engulfing Address Downtown and the two luxury apartments he owns in the 63-story tower.
Dubai, one of seven of the United Arab Emirates, lives and dies by real estate. When a property bubble burst a decade ago, it needed a $20 billion rescue from neighboring Abu Dhabi to pull back from the brink of default. Since prices peaked in 2014, the $108 billion economy had a softer landing as it transitioned from boom to bust.
Early signs of a bottoming out in the property sector even prompted Morgan Stanley (NYSE:MS) to “double-upgrade” U.A.E. stocks in February. An index tracking the city’s real-estate and construction stocks climbed 5.8 percent in the first three months of the year, snapping five quarters of losses. The gauge advanced 0.1 percent on Thursday.
But Mobius said shares of Dubai’s developers aren’t cheap enough. While the World Expo 2020 fair will reinforce the city’s position on the world map, it won’t be enough to revive the emirate’s property sector unless the government relaxes its immigration policies, he said.
“That’s where you’re going to have real problems,” he said.
(Updates chart and adds index performance in 6th paragraph.)
