Dubai developers, lenders may merge as growth slows

Source : Business Times - 9 Oct 2008

This may be the only option given the pull-back of public market credit

Dubai property developers and lenders may seek mergers as credit tightens and home price growth slows, said Zahed Chowdhury, head of Middle East research at Deutsche Bank.

Towering aspirations: Visitors looking at the model of a tower to be built in a proposed new city by Dubai government firm Meraas Development; the model was displayed at the opening of the Cityscape exhibition in Dubai on Monday

‘Given the apparent pull-back of public market credit, this is probably the only option for some companies,’ Mr Chowdhury said on Tuesday. ‘Size obviously matters and a large balance sheet will certainly help.’

Deyaar Development PJSC, a state-owned real estate company based here, may take advantage of falling asset prices to make acquisitions in the region, chief executive officer Markus Giebel said in an interview on Oct 6. He declined to comment on a Zawya Dow Jones report that Deyaar might merge with Union Properties PJSC, another developer based in the emirate.

Home-prices in Dubai may start falling in the second half of 2009 after quadrupling in five years, according to a September report by EFG-Hermes Holding SAE, an investment bank. The global credit crisis has made construction more expensive and harder to finance as Dubai pushes forward with plans for projects including three palm-shaped islands and a tower with a height of one km.

‘There is no easy money in the real estate industry any more,’ Kamel Lazaar, chairman of Saudi Arabia- based financial advisory firm Swicorp and head of Dubai’s Cityscape conference, said in an interview on Tuesday.

Amlak Finance PJSC and Tamweel PJSC, the biggest mortgage lenders in the United Arab Emirates (UAE), are in talks that may lead to a merger, according to a statement on Oct 4. Both are based in Dubai, one of seven sheikhdoms that make up the UAE.

‘They need to reach a critical size to service the market here and expand outside the emirates,’ said Mr Lazaar of Swicorp.

Zaid Ghoul, chief financial officer of Union Properties, is not aware of any talks to combine his company with Deyaar, he said in an interview here on Tuesday. ‘There may be discussions going on at the government level,’ he said.

‘If things are going to get tough, it definitely makes sense for Deyaar and Union Properties to merge because their businesses and their portfolios are relatively similar,’ Robert McKinnon, managing director of equity research at Al Mal Capital PSC, said in an interview on Tuesday.

The UAE is carrying out projects valued at about US$658 billion, according to a report last year by ING Bank NV. Dubai plans to build a 350 billion dirham (S$140 billion) development called Jumeirah Gardens that will be home to as many as 60,000 people, Gulf News reported on Tuesday. The newspaper cited Meraas Development, the company that is managing the project.