Dubai won’t sell assets to aid Dubai World

Comment sends Dubai stock market down almost 6% to 20-week low

Dubai moved on yesterday to ring-fence prized assets from the US$26 billion debt restructuring of Dubai World, denting already fragile investor sentiment ahead of talks between the struggling conglomerate and key creditors.

Bahrain’s central bank governor said that the kingdom’s exposure to Dubai World was limited, echoing top monetary officials in Saudi Arabia and Oman, while the biggest lenders in Qatar and Deutsche Bank both said that they had no exposure.

Dubai World is expected to meet its main bank creditors this week, possibly as early as yesterday, to discuss a request to delay debt payments that has shaken global markets and damaged the reputation of the Gulf’s business hub, bankers said.

London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland will attend, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank, an unnamed Abu Dhabi bank executive said last week.

Dubai’s finance chief said yesterday that state-controlled Dubai World might sell some assets to finance its commitments, but that the emirate’s government would not chip in with any disposals of its own.

‘Part of obtaining finance is selling assets . . . belonging to the company and not the government,’ Abdulrahman Al-Saleh, director-general of Dubai’s department of finance, said in an interview with Al Jazeera television.

‘There is confusion in the media that the government plans to sell assets . . . The company has foreign investments and real estate investments abroad. There is nothing to prevent selling these assets.’

The struggling conglomerate on Nov 30 shed some light on how it planned to restructure the US$26 billion debt pile, including through asset sales.

It said that the restructuring excluded firms on a ’stable financial footing’ such as Istithmar World, DP World and Jebel Ali Freezone, implying its global crown jewels would not be up for grabs.

Istithmar’s portfolio ranges from US high-end retailer Barneys to the luxury W Hotel in Washington, D.C. as well as sought-after property in London including 10 Whitehall Place.

Infinity World, another unit exempt from the plans, is a stakeholder in MGM Mirage.

‘They need to do this in order to support their statements about the separation between Dubai World and Dubai government . . . The question now is which assets and at what price,’ said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

Mr Saleh’s comments sent the Dubai stock market tumbling almost 6 per cent to a 20-week low, reversing quick gains made on Sunday, with DP World, the flagship unit of Dubai World, slumping 5.5 per cent, while property stocks were all trading down.

‘(The market) did not react well to the Dubai government news, which again cast a cloud of doubt,’ said Ayman El-Saheb, Darahem Financial Brokerage’s director of operations.

Since Dubai World requested a payment standstill on Nov 25 for US$3.52 billion worth of Islamic bonds maturing this month, regional government officials and bankers have looked to downplay the impact of the measure on their economies.

Bahrain’s central bank governor joined the chorus yesterday, saying that the kingdom’s exposure to Dubai World was less than 0.1 per cent of total assets or US$281 million.

Deutsche Bank’s Middle East’s chief executive Henry Azzam said that the bank did not have any exposure, and that he did not expect the crisis to have a major impact on the region’s banking sector.

Source : Business Times – 8 Dec 2009

Dubai waterfront land may be seized

Nakheel PJSC creditors may win the right to seize a strip of barren waterfront land the size of Manhattan if the company defaults on the US$3.5 billion bond backing the development.

Investors will be able to seek foreclosure on the property’s mortgages should the Dubai World unit fail to repay the loan, according to the bond’s prospectus.

The debt is due next Monday, after which Nakheel has two weeks to remedy a default. The property forms part of the Dubai Waterfront project, where Nakheel plans to build a city twice the size of Hong Kong.

Dubai World is trying to restructure US$26 billion of debt after seeking a ’standstill’ agreement on liabilities, including Nakheel’s sukuk bond on the waterfront parcel.

The bond is secured against a 50-year lease on 63 million square metres of land on which Nakheel plans to build the southern part of Dubai Waterfront, and a series of manmade islands in the shape of a crescent.

‘The project isn’t likely to happen,’ said Saud Masud, a Dubai-based property analyst at UBS AG. ‘I’d be very surprised if anything is built in the next five years.’

The land was valued at US$4.2 billion by Jones Lang LaSalle Inc three years ago, based on the entire project being ready by 2018, when it would be worth US$11.8 billion, the prospectus said.

Sukuk are securities that comply with Islamic law, which forbids interest-bearing bonds. The leases on the two Nakheel properties were sold to a special-purpose vehicle that issued the sukuk. They were then leased back to Nakheel, which made rental payments to stay within the law.

The sukuk’s trustee, acting on behalf of noteholders, can ‘take any action to enforce any of the security documents’, if Nakheel doesn’t redeem the bond, said the 2006 prospectus, which classifies the mortgages as security documents.

‘The outcome of Nakheel will set the tone of how people will approach the question of access to assets, what a security package is really worth, and legal rights with a jurisdiction,’ said Brinda Kirpalani, head of credit and convertible research at ADI Alternative Investments SA in Paris.

The waterfront project was among Dubai World’s most ambitious. Dubai Waterfront posters had lined a wall of billboards about 10 metres high and stretched for at least a kilometre along Sheikh Zayed Road, which surrounds part of the land. The posters were removed in the last month. Smaller billboards with Nakheel’s corporate logo remain.

Now the area is bare, except for a cluster of partly finished low-rise buildings and idle cranes for hundreds of metres. Yesterday, camels roamed part of the land.

Source : Business Times – 8 Dec 2009

S’pore and Dubai – alike, yet so different

Source : Business Times – 4 Dec 2009

Dubai lacked a development plan backed by fundamentals and prudence

IT IS really a contrasting tale of two cities.

Singapore, which is fundamentally strong, is now bracing itself for an economic recovery next year, while debt-ridden Dubai finds itself under the spotlight due to its credit woes.

But as recently as four years ago, Dubai was portraying itself as the ‘Singapore’ of the Middle East, not least because of the fact that the tiny Gulf state’s economic model closely mirrors that of the South-east Asian country in the last decade.

For example, both resource- scarce city states poured vast amounts of resources into aviation, transport, financial services and healthcare – sectors that will presumably boost the country’s development and attract plenty of foreign direct investment (FDI).

In Dubai’s case, its airport was pitched as a strategic stopover point between Asia and Europe, much like Changi Airport, while flag carrier Emirates sought to rival Singapore Airlines (SIA) by adding to its fleet of carriers, even in the face of the economic downturn.

Then there is the Dubai Aerospace Enterprise set up in 2006 to capture some airport development and operations projects in emerging markets, while Dubai Ports beat PSA International to buy P&O Ports for £3.9 billion (S$8.95 billion) in 2007.

Dubai, the world’s sixth-largest container port handler, wanted to run more terminals in China and India to tap growing economies and challenge rivals such as Singapore’s PSA International.

The Gulf state also challenged Singapore in the US$25 billion market for marine oil by setting up an exchange in 2005 to allow futures trading in marine oil at the port of Fujairah, one of the world’s top three fuel stops for ships.

The dizzying pace of development certainly represents a deliberate part of the ruling family’s strategy to transform the Gulf state into a world-class hub.

Construction spree

But beyond the similarities, key differences remain between the two, perhaps made all the more important when it comes to the crunch.

The first difference concerns the types of projects that Dubai has undertaken and the amount of debt it used to fund them.

In the past few years, Dubai went on a construction spree that included building the world’s tallest tower, the 818-metre-high Burj Dubai, and a man-made island called Palm Jumeirah.

Consider the amounts that was poured into those projects: The Burj Dubai building alone will cost an estimated US$1 billion, while US$1.5 billion was invested in the Atlantis hotel on the palm-shaped island. It is fair to ask if there is ever going to be demand for these projects, and will the tourist numbers be as claimed – a staggering 10 million hotel visitors annually by 2010. Or is it just mere hubris driven by the bubble of the past few years?

Of the US$99.6 billion worth of assets in Dubai World, close to 60 per cent or US$59.3 billion is leverage. With an unpredictable stream of cashflow, a long time horizon plus a debt-ratio higher than one, the credit crisis looks like an event that was waiting to happen.

In Singapore, state-owned Temasek Holdings started in the 1970s on a more solid footing by investing in infrastructure and providing basic services for the economy.

Temasek-linked companies such as SIA and PSA are in strategic sectors that are expected to do well in the long run, and the government investment firm certainly did not undertake any lavish property projects on the scale of Burj Dubai or the Palm developments.

Secondly, Dubai lacks a significant electronics manufacturing base that lends support to its export dollars, as the factory output accounts for just under 15 per cent of GDP. A look at the sectors into which it has poured its money (property, tourism, financial services, etc) reveals that they are all services-related – meaning that export flows can easily reverse in a matter of months, if not weeks. This inherently hampers Dubai’s ability to meet its short-term obligations especially in times of economic crisis.

Cushion

In contrast, manufacturing has been a significant contributor to Singapore’s economic growth for many years, and still accounts for about a fifth of economic activity here. This not only acts as a cushion for any downturn in the services sector, but the returns are often less volatile.

Indeed, Dubai represents all that was wrong with the pre-crisis financial world – built on hubris, loans, speculation, and the fallacy that the champagne-popping party could continue forever.

But, as the saying goes, all good things must come to an end. And the lesson from Dubai’s experience is this: without a development plan backed by fundamentals and prudence, even an oasis in the sand will end up as a mere mirage in the desert.

Dubai’s woes could hit the fragile US real estate market

Source : Business Times – 30 Nov 2009

Dubai World, with US$59b of debt, set off a global stock market selloff last week

Dubai’s debt woes could further unhinge an already fragile US commercial real estate, as it illustrates the importance of that tiny country to global investors in an increasingly interconnected world.

A state-owned investment conglomerate Dubai World, with US$59 billion of liabilities, set off a global stock market selloff last week after it said it wants to restructure its debt, including at its property subsidiary Nakheel.

‘This downturn has had more of a global impact,’ said Tony Ciochetti, chairman of Massachusetts Institute of Technology’s Center for Real Estate in Cambridge, Massachusetts.

‘As I try to explain to my students, with a global economy, we’re all attached at the hip financially in some way, shape or form,’ he added.

The Dubai news also cast doubt over the strength of the fledgling US economic recovery, and the prospects for a bottoming of property prices.

On Friday alone, the Dow Jones US Real Estate Index fell 2.9 per cent, nearly twice the decline of broader US market indexes. ‘Dubai may have to unload some very prestigious properties at distressed prices and this will drive the price of all commercial real estate lower,’ wrote Richard Bove, a banking analyst at Rochdale Securities in Lutz, Florida.

In the US, Dubai World’s portfolio includes several well-known properties, and the fallout could have a larger impact on the entire real estate market.

The company is a partner with casino operator MGM Mirage in the US$8.5 billion CityCenter project, which would add 6,000 rooms to a Las Vegas Strip gambling corridor already saturated with unoccupied hotel rooms.

Nakheel, perhaps best known as the developer of Dubai’s palm-shaped islands, also carries the Mandarin Oriental and W hotels in New York in its portfolio, and has a 50 per cent stake in the Fontainebleau Miami Beach resort.

And, through its Istithmar affiliate, Dubai World controls the upscale retailer Barneys New York Inc.

The main threat to US commercial property from Dubai World woes may be ‘potential for contagion’, said Sam Chandan, chief economist at Real Estate Econometrics LLC in New York. ‘It has the potential to spill over into the broader perception of real estate development and real estate as being a very risky area for exposure,’ Mr Chandan said.

Many have already been burned.

US commercial real estate values have already fallen 42.9 per cent from their 2007 peak, Moody’s Investors Service said. Last month, delinquencies on US commercial real estate loans that were packaged into commercial mortgage-backed securities reached 4.8 per cent, more than six times the year earlier level, according to Trepp LLC in New York.

In a Nov 23 report, Moody’s analyst Nick Levidy said prices could bottom at 45-55 per cent below their peak, implying an additional 5-28 per cent decline, but in a ’stress case’ could drop 65 per cent from their peak. Like US investors, foreign investors were enticed through much of this decade to buy US real estate aided by cheap credit and the hope that property prices would steadily rise for a long time.

Currency fluctuations also provided a boost. And the US dollar lost about one-third of its value against a basket of currencies since late 2002, making it easier for foreign investors to scoop up US real estate even when valuations grew too rich for investors at home.

Dubai World’s holdings go far beyond real estate. It has a 20 per cent stake in Canada’s Cirque du Soleil, and also invests in the global bank Standard Chartered Plc and New York boutique investment bank Perella Weinberg Partners.

Other investments go farther afield – or under water. Dubai World is suing a former executive in a case arising from a wayward foray into submarine financing. But Mr Ciochetti suggested that it is premature to quantify Dubai World’s impact on US commercial real estate.

‘It is hard to focus on any one particular participant and then generalise about the whole market,’ he said. ‘It illustrates that very few places and participants in the commercial real estate market are totally exempt from the global economic crisis.’

S’pore firms shrug off Dubai default

Source : Straits Times – 28 Nov 2009

THE debt troubles of Dubai World appear to have had a limited impact on Singapore companies with links to the Gulf emirate.

Property group City Developments (CDL), which tied up with the Dubai government investment company to develop the billion-dollar South Beach site near Suntec City, said it does not expect ‘any impact at all’ on the site’s development.

‘Dubai World holds only a one-third share’ of the development, a CDL spokesman said yesterday. CDL has another third, and the last third belongs to the United States-based El-Ad Group.

The spokesman told The Straits Times that no further capital needs to be pumped into the project at present.

‘However, when the time comes for construction to proceed, all partners will be required to put in their share of additional funds. Should Dubai World decide not to contribute their proportionate share for whatever reasons, their shareholding will be diluted.’

Dubai World had asked on Thursday for six more months to repay its debts, sending global financial markets into a panic over Dubai’s possible bankruptcy.

Analysts singled out banks as among the most vulnerable to a Dubai debt default. The news could have a ‘meaningful impact’ on banks across Asia, said Mr Daniel Tabbush, a banking analyst at CLSA in Bangkok.

He listed Standard Chartered, HSBC and Singapore’s DBS Group as the most exposed in the region.

DBS has a branch in Dubai that was opened in 2006, marking the bank’s first foray into Islamic finance. DBS could not be reached for comment yesterday.

Along with United Overseas Bank and OCBC Bank, DBS is also part of a syndicate helping to finance CDL’s South Beach project.

Market observers said the banks that have exposure to Dubai only through the South Beach project are unlikely to be affected by Dubai’s financial problems, as they will have collateral in the form of the property.

Public transport company SMRT also has a partnership with Nakheel, a property developer that works under the umbrella of the Dubai World group.

SMRT has a six-year contract worth about $120 million with Nakheel to operate and maintain a monorail running through the Palm Jumeirah development in Dubai.

In response to queries about how Dubai’s debt difficulties would affect SMRT, chief operating officer Yeo Meng Hin said the impact to the monorail’s operations, if any, would be minimal.

‘We are long-term partners with Nakheel, and will continue to work closely with its management during this challenging time,’ he said.

Other Singapore companies that have crossed paths with Dubai World include Labroy Marine and Pan-United Marine. The Dubai firm bought both Singapore shipyards in 2007 for about US$2 billion (S$2.7 billion).

Earlier that year, Dubai World’s sister firm Dubai Ports World grabbed headlines in Singapore when it beat PSA International to buy P&O Ports for £3.9 billion (S$8.8 billion).

From fishing village to desert paradise in 40 years

Source : Straits Times – 28 Nov 2009

IN A land seemingly built for the purposes of conspicuous consumption, Dubai never lacked extravagant icons of success.

The most extravagant – and most emblematic of the once sleepy fishing village’s transformation to oasis playground for the rich – were surely the palm tree and the sail.

In keeping with the tiny Gulf emirate’s grandiose vision, both were artificial. One was a set of man-made islands in the shape of palm trees and the other the sail-shaped Burj Al Arab, the world’s most expensive hotel.

Then there was the man-made harbour, the largest in the world, built at Jebel Ali while a free-trade zone was created around the port, catapulting Dubai into the league of major international business hubs.

Billing itself as a safe haven within a volatile region for investors and tourists alike, Dubai, which discovered oil in 1966, tripled its economy to US$34.5 billion (S$47.9 billion) in the 10 years to 2006 and achieved double-digit growth every year until the financial crisis struck.

Its expansion was relentless. By last year, foreign direct investment into Dubai totalled US$21 billion, according to the Financial Times.

The Gulf emirate established itself as the region’s trade and tourism hub, developing businesses such as port operator DP World that became leaders in their field.

It also set out to become a world-class financial centre, competing with the likes of New York and London and boasting an edge in the burgeoning area of Islamic finance.

In 2007, Dubai and Qatar became the two biggest shareholders of the London Stock Exchange, the third-largest bourse in the world.

Within its own borders, Dubai embarked on a massive six-year building boom that turned sand dunes into a glittering metropolis and the city into a magnet for the young, rich and glamorous.

No project was too lavish for Dubai. It is home to the world’s biggest shopping mall – the 1,200-shop Dubai Mall – and will have the world’s tallest building when the 160-storey Burj Dubai is completed next year at an estimated cost of US$1 billion.

The Burj Al Arab hotel was itself the tallest building in the world when it was completed in 1999. The hotel gave itself a seven-star rating – the first in the world – and watched as the publicity, room rates and bookings rocketed.

Dubai made the unthinkable possible with Ski Dubai, which opened in 2006 to offer the ultimate in luxury: skiing in the desert, on one of the world’s largest indoor ski slopes with fresh powder all year round.

Celebrities converged on Dubai’s sands, with David Beckham and Brad Pitt reportedly owning villas in the Palm Jumeirah development, the only one of three planned palm-tree shaped islands that has been completed.

The future of the other two Palm islands is now up in the air – much like that of Dubai itself.

Debt default shadow on Dubai’s sand castle

Source : Business Times – 27 Nov 2009

Saddled with a staggering US$59 billion in liabilities, Dubai World – the state-run investment firm behind Dubai’s sizzling growth over the past 20 years – wants to delay repaying its dues until end-May next year.

In a move that has stunned investor confidence across the Persian Gulf, possibly leading to the biggest sovereign default since Argentina in 2001, the Dubai government has said that it intends to reorganise the severely cash- strapped Dubai World, which is one of the emirate’s largest and most important conglomerates.

The US$59 billion debt owed by Dubai World is a large chunk of the US$80 billion accumulated by Dubai as it rapidly expanded in various sectors such as banking, transportation and real estate.

‘Dubai World has a portfolio of strategically important businesses and the restructuring will be designed to address financial obligations and improve business efficiency for the future,’ the government said in a terse statement explaining its decision, issued just hours before the start of the Eid al-Adha holiday and the United Arab Emirates national day celebrations, which will see the region shut down until Dec 6.

The five-paragraph note also said that the Dubai Financial Support Fund – which is responsible for disbursing US$10 billion in federal rescue funds to Dubai government-controlled entities – had appointed veteran bankruptcy expert Aidan Birkett, a managing partner overseeing corporate finance at accounting firm Deloitte, as Dubai World’s chief restructuring officer.

Markets across Europe reacted negatively to the news. The FTSE 100 index of leading British shares was down 99.84 points, or 1.9 per cent, at 5,264.97.

Over in Asia, the Shanghai index fell 119.19 points, or 3.6 per cent, to close at 3,170.98, its biggest one-day fall since Aug 31. In South Korea, shares in construction issues lost ground, with Samsung C&T leading the way with a 6.2 per cent decline.

Dubai’s announcement came after the closing of its stock market for the long holiday, but the value of Nakheel’s 2009 bonds slumped 27 per cent, according to EFG-Hermes regional investment bank. US markets were closed for the annual Thanksgiving holiday.

The request for a creditor standstill also applied to Dubai World’s subsidiary, Nakheel Development, which is behind a number of extravagant real estate developments including the city-state’s Palm Jumeirah, a man-made palm-shaped island housing hotels and luxury villas that count Hollywood actor Brad Pitt and footballer David Beckham on the list of owners.

Already, home prices in Dubai have fallen 50 per cent from their peak in 2008.

Dubai World is one of Dubai’s three biggest conglomerates together with Dubai Holding and the Investment Corporation of Dubai responsible for carrying out the emirate’s development strategies. Dubai World also owns DP World, the third-largest international ports operator.

Back in 2006, DP World won a three-month battle to take over British port operator Peninsular and Oriental Steam Navigation Company (P&O) after PSA Singapore withdrew its 470 pence-a-share bid, leaving DP World’s 520 pence-a- share bid as the only offer left on the table.

After the emirate’s years of rapid growth, the sense among analysts is that the weight of the global credit crunch and recession has finally caught up on Dubai’s ambitious economic model, one that is largely based on mega-construction projects and a huge influx of foreign capital.

Eckart Woertz, an economist with Dubai’s Gulf Research Centre, told the Financial Times: ‘This will destroy confidence in Dubai – the whole process has been so opaque and unfair to investors.’

Many are finding the news hard to swallow, particularly as senior Dubai officials had over the past few months taken steps to reassure investors that the emirate would still be able to meet all its existing debt obligations. Nakheel, for one, is due to pay back US$3.5 billion on a maturing Islamic bond on Dec 14.

According to latest data from Deutsche Bank, Dubai owes US$4.3 billion next month and a further US$4.9 billion in the first quarter of 2010 in government and corporate debt.

Earlier this year, Dubai raised US$10 billion in a bond issue that was taken up by the Abu Dhabi central bank.

On Wednesday, Dubai announced that it had raised a further US$5 billion from Abu Dhabi banks – much less than the US$20 billion it had been hoping to attract in foreign investment.

In a note, the Royal Bank of Scotland said that investors would now have to ‘reappraise the quality of sovereign support’ for state-owned entities in the region.

‘The other risk is that rating agencies would reassess their views of names in the region, which in many cases benefit from substantial rating premiums driven by assumptions about sovereign support, which is no longer a given.’

Standard & Poor’s (S&P) and Moody’s Investors Service immediately downgraded the ratings of all six government-related issuers in Dubai and left them open for a possible further downgrade. Moody’s cut ratings on some government-related entities to junk status, while S&P cut ratings on some entities to one level above junk.

Abu Dhabi limits housing construction to avoid glut

Source : Business Times – 26 Nov 2009

Abu Dhabi is limiting construction to avoid the housing glut and price declines that battered the real estate market in neighbouring Dubai, Aldar Properties PJSC chief executive officer John Bullough says.

The emirate has a shortage of 15,000 to 20,000 units and the government will let the ‘rope out on development in a measured way’, Mr Bullough, whose company is the United Arab Emirates’ second-biggest developer, said in an interview. ‘There will be, in our view, a lag between supply and demand.’

Abu Dhabi, the UAE’s capital and holder of 8 per cent of the world’s oil reserves, controls development from homes to offices and transportation links under its ‘Plan 2030′, devised in 2007. The plan foresees the population growing to as much as 5 million by 2030 from an estimated 1.6 million in 2008.

‘There is a short-term question mark, but then there is a medium- to long-term suitability,’ Aldar CFO Shafqat Malik said in an interview last week at the company’s Abu Dhabi headquarters.

‘What we saw over here is the doubling of rents and prices. Is this a sustainable way for any economy to grow? The answer is probably no.’

Aldar said it plans to deliver 3,500 homes and 140,000 square metres of commercial space over the next 18-24 months.

Abu Dhabi’s government owns 18.9 per cent of Aldar through Mubadala Development Co and 7.2 per cent through state fund manager Abu Dhabi Investment Co, according to the emirate’s exchange.

Limiting supply ‘brings up the cost of housing and can be seen as an additional tax on companies’, Jesse Downs, director of research and advisory services at Dubai-based Landmark Advisory, said in a phone interview. ‘So it could potentially curb job growth, which has a residual effect on the real estate market.’

Abu Dhabi home prices have dropped an average of 33 per cent from their peak in the third quarter of 2008, according to Matthew Green, head of UAE research at CB Richard Ellis (CBRE) Group Inc.

Dubai’s residential property values have fallen more than 50 per cent and UBS AG said last week that they may decline as much as 30 per cent more.

‘We are not in the business of releasing and withholding units or regulating prices,’ Fouad Kassem, public affairs officer for Abu Dhabi’s Urban Planning Council said in a phone interview. ‘Our role is focused on planning, and proposed projects that don’t fit with the master plan are not allowed.’

Slowing down construction was easier in Abu Dhabi than Dubai because more projects were at the planning stage when the financial crisis hit and therefore easier to postpone, Mr Downs said.

Dubai is moving to tighten control of its own property supply through a planned merger of Emaar Properties PJSC, the country’s biggest developer, with state-controlled Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC.

A housing shortage in Abu Dhabi won’t help lift prices because residents can commute from Dubai, which has an oversupply, Deutsche Bank AG said in note in June. The highway linking the two cities makes ‘both markets highly interconnected’, it said.

Dubai opened its property market to foreign investors in 2002, followed by Abu Dhabi three years later, fuelling a boom bolstered by low interest rates. Prices slumped at the onset of the global financial crisis as banks clamped down on mortgages, and speculators left the market.

‘We suffered from the same thing here as the rest of the world in terms of speculation and flipping,’ Mr Bullough said. ‘Those days are gone and there is a much more pragmatic focus to purchases. The dealers, it’s fair to say, have left the market.’

Property speculation in Abu Dhabi and Dubai caused institutional investors such as ING Groep NV’s US$150 billion real estate fund to shun the markets and prompted governments in both emirates to cap annual rent increases.

‘There has been a significant reprioritisation across the whole of the development community,’ Mr Bullough said. It ‘delayed delivery of a lot of what was in the pipeline, and that bodes well for the future because it means we will be able to maintain a more effective balance between supply and demand.’

Aldar postponed its Al Dana development, originally designed as a luxury project, and asked for a redesign to suit the needs of low-income buyers, Aldar’s chief operating officer Sami Asad said in February.

‘We see greater demand at the smaller scale, more affordable end of the market,’ Mr Bullough said. ‘That’s perfectly normal for any market. You have a much higher proportion of people who can afford a medium-sized place.’

Dubai World moves assets in revamp

Source : Business Times – 18 Sep 2009

Dubai World, a state-owned holding company, said it transferred select hotel and real-estate assets, mainly in international markets, to its private equity company Istithmar World PJSC as part of a reorganisation.

Hamza Mustafa will join Istithmar World from Nakheel PJSC, a property company within the same group, as managing director with responsibility for the hotels and buildings transferred to Istithmar, Dubai World said yesterday.

The restructuring is ‘positive because it means they realise the problems they have and they are working at solving them,’ said Rami Sidani, who manages US$250 million as head of Middle East and North Africa at Schroder Investment Management Ltd. in Dubai.

‘The restructuring is needed to cut costs, consolidate debt and make sure that obligations are monitored.’

Dubai World, one of Dubai’s three main state- owned groups, had US$59.3 billion in liabilities at the end of 2008 and is attempting a restructuring amid slowing economic growth in Dubai and a decline of nearly 50 per cent in property prices. The group owns Nakheel, the developer building palm-tree shaped islands off the emirate’s coast, DP World Ltd, the world’s fourth-biggest port operator, and business park Jebel Ali Free Zone.

Istithmar World is halting investments as part of a restructuring, people familiar with the plan said on Sept 11. Dubai World also moved several executives from Nakheel to Istithmar as part of the restructuring.

Andy Watson will be chief investment officer at Istithmar, Binod Narsimhan will be chief financial officer and Sandesh Pandhare, managing director of private equity, the statement added. They will report to Istithmar chief executive officer David Jackson. Istithmar owns stakes in luxury retailer Barneys New York and London-listed bank Standard Chartered plc.

Source : Business Times – 18 Sep 2009

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Singapore is Asia-Pac’s 2nd most competitive IT market

Posted by luxuryasiahome on September 18, 2009

The Republic has inched ahead of Taiwan and South Korea to become the second most competitive information technology market in the Asia-Pacific region, a new study by the Economist Intelligence Unit (EIU) reveals.

The annual report, sponsored by anti-piracy trade group Business Software Alliance (BSA), scores 66 countries around the world on six key yardsticks which EIU uses to ascertain the competitiveness of a nation’s tech sector.

These include a country’s business environment, technology infrastructure, legal framework, as well as its research and development (R&D) landscape.

Singapore scored 68.2 out of a possible 100, placing it just behind regional frontrunner Australia, which garnered a score of 68.7. The tally moves it to second position from fourth last year.

Taiwan and South Korea, which clinched first and third position in 2008, dropped to fourth and fifth place in the latest EIU rankings. On a worldwide basis, Singapore retained its ninth ranking this time around.

According to Manoj Vohra, EIU’s director of research, Singapore was in pole position in five out of the six categories used to measure IT competitiveness. EIU ranked Singapore first in the region in terms of its R&D environment and support for the IT sector, thanks to the strong backing of the local government.

The Republic’s legal environment was deemed to be the second best in Asia behind Australia, a result of its stringent intellectual property protection regime and cybercrime laws, Mr Vohra said.

‘There’s a distinct possibility Singapore could become No 1 (in the next few years),’ he told reporters at a briefing yesterday.

In order to clinch top spot, EIU highlighted one key area for improvement: IT human capital.

Singapore ranked eighth in the region in terms of human capital, a category which encompasses factors such as the number of people in higher education and enrolment numbers for science-related courses.

‘This (human capital) is the place where most work needs to be done,’ Mr Vohra stressed.

Singapore is already disadvantaged by the small size of its IT labour pool compared to countries such as India and China.

To compound the problem, the number of students enrolling in the science discipline – the talent supply pipeline for technology companies – is also lower than many of its Asian counterparts, EIU found.

Singapore should encourage more students to take up science courses and consider introducing ‘labour mobility’ initiatives to tap into the vast pool of skilled IT workers in places such as India, Mr Vohra added.

Q2 mortgage loans fall 77% in Dubai

Source : Business Times – 25 Aug 2009

Research firm says financial crisis has curtailed credit from banks

Dubai mortgage lending fell 77 per cent in the second-quarter this year compared with a year earlier as the financial crisis curtailed credit, according to research firm REIDIN.com.

Second-quarter mortgage lending by 39 banks dropped to 8 billion dirhams (S$3.2 billion) from 35.2 billion dirhams a year earlier, REIDIN.com said in an e-mailed report. Mortgage lending rose 14 per cent from 7 billion dirhams in the first quarter, the firm reported.

Dubai, the second-biggest of seven states that make up the United Arab Emirates, has been hurt more than the others by the financial crisis as banks cut back on mortgages and speculators fled. The emirate within a year went from the fastest-rising of 46 markets monitored by the Knight Frank global house-price index to the second-biggest decliner after Latvia.

The banks registered 1,365 mortgages in Dubai in the second quarter. Abu Dhabi Commercial Bank PJSC, the third-biggest bank by assets in the federation, granted 1.86 billion dirhams in mortgages, according to REIDIN.com, which collaborated with Dubai’s Real-Estate Regulatory Authority and Dubai Land Department on the research.

Dubai Islamic Bank PJSC, a United Arab Emirates-based Islamic lender, extended 1.83 billion dirhams in mortgages in 151 transactions and National Bank of Dubai financed almost 1.1 billion dirhams in mortgages in 80 transactions.

Dubai home prices drop further

Source : Business Times – 11 Aug 2009

Dubai house prices fell by 24 per cent in the second quarter from the prior quarter but the pace of decline slowed, in line with improving global property markets, Landmark Advisory said on Sunday.

Prices fell less in the same period in Abu Dhabi, as the United Arab Emirates’ (UAE) capital, home to most of the country’s oil, continues to weather the global downturn better than its neighbour.

The average sale price for villas in Dubai fell 24 per cent while apartments declined 17 per cent, Landmark said.

Prices for villas and apartments fell 32 per cent and 23 per cent respectively in the first quarter from the fourth quarter, the firm said in its May report.

Dubai’s once-booming real estate sector has been hit hard by the global financial crisis, but the pick-up in more mature markets such as the United States and Britain is starting to cheer investors.

Prices in the US rose in May for the first time in three years while prices in Britain gained for a third month running in July.

House prices in Dubai are likely to stabilise by the fourth quarter, after falling 9 per cent in the second quarter from the previous quarter, Colliers International said last week.

Rents for villas in Dubai fell 19 per cent to 220,350 dirhams (S$86,480) in the second quarter, while apartment rents dropped 23 per cent to 129,900 dirhams, Landmark said.

Transaction volumes rose 25 per cent and 20 per cent respectively as more people relocated to Dubai from the neighbouring emirates of Abu Dhabi and Sharjah, it said.

In Abu Dhabi, sale prices fell by up to 11 per cent for apartments in the second quarter and 8 per cent for villas compared with the previous quarter, but prices are unlikely to suffer further significant declines, the report said.

The rate of decline also slowed as prices for both categories fell 20 per cent and 30 per cent respectively in the first quarter from the fourth quarter, Landmark said in May.

Rents for both apartments and villas fell by roughly 10 per cent in the second quarter, it said, adding average rents would likely fall significantly as more supply enters the market.

Seven emirates make up the UAE federation.

Landmark Advisory is part of real estate brokerage and consultancy Landmark Properties, which has offices in the UAE and London.

Battered owners hopeful as home sales, prices rise

Source : Business Times – 11 Aug 2009

But analysts remain sceptical on the longer-term outlook for property prices

For homeowners around the world struck by the collapse of property markets, figures showing the downward spiral may be halting are the most meaningful signs yet of a possible economic recovery.

As battered banks and stocks rally again, news that US house prices are finally rising after nearly three years of traumatic decline offers the greatest hope to hard-pressed homeowners from California to Krakow.

The sub-prime home loan crisis in America was the pressure-point that exposed underlying global financial chaos – and many economists say that property prices there are the linchpin for confidence in broader economic recovery.

US home sales have been rising and the latest Standard & Poor’s/Case Shiller index of home prices in 20 major US cities showed a 0.5 per cent increase between April and May – the first monthly rise since 2006.

‘This is the first time we have seen broad increases in home prices in 34 months. This could be an indication that home price declines are finally stabilising,’ said Standard & Poor’s analyst David Blitzer.

Data from the National Association of Realtors also showed that the median price of existing US home sales was US$181,600 (S$261,704) in June – 15 per cent lower than a year ago, but up from US$174,700 in May.

Celia Chen, an analyst at credit rating agency Moody’s, said that there were ‘tantalising signs that the descent in house prices is at least moderating’, but warned that house prices will not reach their 2006 highs until 2020.

Joel Naroff at Naroff Economic Advisors disagreed with that downbeat view, saying the increase ‘could start increasing much more rapidly than projected’.

Analysts remain sceptical on the longer-term outlook for property prices as stable economic growth remains vulnerable to rising unemployment and government strategies for a clean exit from recession after unprecedented fiscal stimulus.

But that is doing little to dampen cautious optimism on property markets.

Official data in China is showing house prices in 70 cities were up 0.8 per cent in June from May, rising for the fourth straight month, while real estate investment nationwide rose 9.9 per cent in the first half of the year.

In Britain, house prices rose by 1.1 per cent last month to just under £160,000 (S$384,808) from June, but were down 12.1 per cent over 12 months, a survey from home-loans provider Halifax showed this week.

In neighbouring Ireland, however, prices have fallen by up to 40 per cent from their peak in 2006 and are still going down – with the government now working to provide 90 billion euros (S$184 billion) in guarantees to the loan market.

Likewise, Spain’s second-biggest bank BBVA has forecast that house prices, after a decade-long, tourism-fuelled property boom, will still fall by nearly 30 per cent between 2008 and 2011 before they start to recover.

In the Gulf emirate of Dubai, house prices have almost halved over the past year. The sector there is struggling with a shortage of liquidity and job security for expatriates who represent over 80 per cent of the population.

The decline in Dubai has had wider implications, with US bank Morgan Stanley saying that world steel production will remain below 75 per cent capacity as it awaits a revival in the construction sector in the Middle East.

And, despite the price rises in Britain, China and the United States, IHS Global Insight analyst Howard Archer warns that there may be surprises in store.

‘We suspect that they will be prone to relapses over the coming months,’ Mr Archer said, referring to British house prices.

He warned that houses could become less affordable because of ‘the economic climate of recession, sharply rising unemployment and slowing wage growth’.

Property rents in Dubai seen falling less

Source : Business Times – 1 Aug 2009

RENTS for residential and commercial properties in Dubai will fall for the rest of this year, but declines will be marginal compared with the first half of the year, CB Richard Ellis said on Thursday.

The Gulf emirate’s once-booming property sector has suffered sharply as a result of the global financial crisis, as prices fall, developers slow or cancel projects and jobs are cut.

‘A period of minimal negative growth over the next 3-6 months could see some stability achieved and the market bottom called before year-end,’ said Matt Green, associate director, Research & Consultancy at the real estate services firm.

Rents in Dubai are seen declining by 40 per cent for the whole of this year, and a further 10 per cent in 2010, before recovering in 2011, a Reuters poll showed in June.

Expats leaving Dubai, coupled with an increase in property supply, has led to a sharp drop in apartment prices.

Newer residential areas have been the worst affected with rents for one-bedroom apartments falling as much as 40 per cent year-on-year to 60,000 dirhams (S$23,608), the report said.

Office supply will increase substantially over the next six months with many projects in the latter stages of completion, it said.

Several projects expected to enter the market in the first half of the year are being pushed back further, while slowdown in business activity has led to a slump in demand for office space.

In neighbouring Abu Dhabi, weak demand and low levels of sales activity are expected to shape the market in the second half of the year, the report said.

The property sector of the United Arab Emirates’ capital, home to most of the country’s oil, has been more resilient than Dubai to the global economic downturn.

Sales prices declines are likely to level off as more investors choose to hold property due to low prices while rents are expected to fall further as more supply enters the market.

‘Distressed sales are starting to clear with more investors choosing to hold on to units.’

Prime office rents in Abu Dhabi have fallen as much as 40 per cent to as low as 3,000 dirhams per square metre over the last three quarters, the report said.

‘Despite comparatively sound macro fundamentals, slowdown in rents is inevitable as demand weakened markedly. The outlook remains uncertain.’

Dubai house prices to fall another 20%

Source : Business Times – 16 Jun 2009

Half of the UAE’s construction projects put on hold

Dubai house prices will fall another 20 per cent this year, as the former boomtown continues to suffer a sharp economic downturn, a Reuters poll showed.

Residential real estate prices in Dubai – home to man-made islands in the shape of palm trees and the world’s tallest building – have a less than 20 per cent chance of picking up before 2011, according to the median forecast of 10 analysts at banks, investment firms and research institutions.

Three of 10 forecasters said that they expected prices to hit a bottom in the second half of 2009 and three predicted that it would happen in the first half of 2010. One forecaster said that prices would rise by 10 per cent from now in 2010.

Five analysts expected prices to fall a further 20 per cent or more this year, and prices could fall an additional 15 per cent next year before stabilising in 2011, the poll showed.

‘We may see a further drop in prices as the magnitude of the problem in the sector is still high and the recovery of the sector may take some more time,’ said Sajeer Babu, an equity analyst at National Bank of Abu Dhabi, which participated in the June 2-9 poll.

Property prices in the seaside emirate have slumped since late last year, when the global financial crisis and a drop in oil prices ended an economic boom in the Gulf Arab region.

Hundreds of billions of dollars of projects have been cancelled in the United Arab Emirates, Dubai firms have laid off thousands of employees and UAE banks have been loathe to extend new mortgage loans.

More than half of the construction projects in the UAE, worth US$582 billion, have been put on hold, Dubai-based market research firm Proleads said in February.

Rents in Dubai are seen declining by 40 per cent for the full year 2009 and a further 10 per cent in 2010 before recovering in 2011, the poll showed.

While it indicated that house prices for 2009 will fall an average of 50 per cent from a peak in the third quarter, it is likely that prices for off-plan properties, or properties still under construction, will fall in excess of that.

Liquidity problems, job losses and additional supply to the market are expected to delay the recovery in Dubai’s property sector.

‘We believe a recovery is likely in late 2010 or early 2011, with this based on a series of factors which include a decline in demand for buying property,’ said Sana Kapadia, vice-president of equity research at EFG-Hermes in Dubai.

‘Our house view is that lower or potentially negative population growth is likely to put a strain on demand,’ she said, adding that more clarity regarding the legal framework for property ownership and greater confidence were also needed.

Dubai’s population is set to fall 17 per cent this year, the bank said in a report in March.

In a previous Reuters poll in March, Shuaa Capital said that it expected 80,000 units of supply for the next two years.

Dubai property prices had soared sharply after the emirate opened its real estate sector to foreign investors in 2002, granting them freehold ownership rights at many developments.

From the beginning of 2007 to mid-2008, property prices jumped almost 80 per cent, according to Morgan Stanley estimates.

As buying properties became more expensive, Dubai’s mainly expatriate population opted to rent instead, causing prices to spiral upwards.

Three of the analysts said that rents in Dubai could fall as much as 50 per cent during 2009.

Meanwhile, Abu Dhabi, the UAE capital and home to most of the country’s oil, has fared better during the global economic downturn.

House prices there are expected to fall 25 per cent on average for the full year, with two out of eight analysts saying that prices would slump as much as 45 per cent.

Prices would remain flat in 2010 and pick up in 2011, the poll showed.

Dubai developer posts 87% fall in Q1 profit

Source : Business Times – 5 May 2009

Union Properties nets 30m dirhams as sales fall, projects get delayed
Union Properties PJSC, the Dubai-based developer that suspended work on a Formula One-themed park, said that first-quarter profit plunged 87 per cent as the global financial crisis hurt real-estate sales and caused projects to be delayed.

Net income fell to 30 million dirhams (S$12 million), or one fil a share, from 238 million dirhams, or 7.8 fils, a year earlier, the company said in a statement yesterday. Sales dropped 40 per cent to 572 million dirhams.

The worst financial crisis since the 1930s has weakened the property market in Persian Gulf states as banks curtailed mortgage lending and speculators sold assets.
Union Properties was hurt by lower revenue at its largest business segment, contracting to build projects for other developers, it said.
Union Properties declined two fils, or 2.7 per cent, to 73 fils at 1.02pm in Dubai trading. The shares have gained 12 per cent this year, while the six-member Dubai Financial Market Real Estate Index has risen 4.6 per cent.
‘The drop today isn’t severe, which suggests the market is bottoming out,’ said Samer Al-Jaouni, general manager at Middle East Financial Brokerage Co in Dubai, referring to Union Properties stock.
Emaar Properties PJSC, the largest developer in the United Arab Emirates, last week said that first-quarter profit dropped 74 per cent as the liquidity crunch and falling house prices cut off growth in Dubai’s real estate market.

Emaar is reducing costs and delaying projects after demand fell in Dubai.
Dubai house prices may slump as much as 70 per cent from their peak late last year as demand drops and banks fail to resume mortgage lending, prompting mergers, UBS AG said in a report on April 22.

Union Properties suspended its planned Dubai Formula One theme park because of the financial crisis, it said on Feb 26.

The company had 6.2 billion dirhams in bank debt at the end of the quarter, giving it a debt-to-equity ratio of 34 to 66, according to yesterday’s statement. Union Properties agreed to refinance 1.1 billion dirhams of short-term debt this quarter.

The company started handing over properties in the MotorCity development at the start of the current quarter and will book revenue as the properties are delivered to clients.

Capitala defers UAE projects

Source : Business Times - 23 Apr 2009

Property developer Capitala, a joint venture of Abu Dhabi’s Mubadala and Singapore’s CapitaLand, said on Tuesday it was holding off on new projects and would offer more lower-end housing.

‘We will defer any new launch until sentiment returns to the market,’ Peter Wilding, deputy CEO, told Reuters on the sidelines of a property exhibition here, where Capitala is based.

‘Demand is still there, but there is no positive sentiment at the investor level and occupier level. People are waiting and watching, but we are confident of the future because of the demand curves,’ Mr Wilding said, adding the Abu Dhabi market was faring better than others in the region during the downturn.

‘There is far too much high-end products, and there is stronger demand for more affordable housing products,’ he said.

‘There is a requirement to diversify our product offering.’

Dubai home prices may slump 70% from peak, says UBS

Source : Business Times - 23 Apr 2009

Falling demand, bank mortgage lending may prompt developers to merge

Dubai house prices may slump as much as 70 per cent from their peak late last year as demand drops and banks fail to resume mortgage lending, prompting mergers, UBS AG said.

‘We are still in relatively early stages of the property down-cycle in United Arab Emirates,’ Saud Masud, a Dubai-based analyst at the Swiss bank, wrote in a report to clients dated Tuesday.

‘We believe risk-reward profiles are not yet compelling for investors to consider market re-entry, hence continued price declines are expected.’

Economic growth in Dubai, the second-biggest of seven states that make up the UAE, slumped after the worst financial crisis since the 1930s hurt its property, financial services and tourism industries.

The economy may contract 2 per cent to 4 per cent this year, Standard & Poor’s Ratings Services said in a report last month.

UBS downgraded Emaar Properties PJSC, the UAE’s biggest developer, and Union Properties PJSC to ’sell’ from ‘neutral’ as first-quarter results ‘will be disappointing’.

House prices in Dubai have slumped at least 25 per cent since their peak, and apartments have tumbled 39 per cent, UBS said.

Dubai’s majority expatriate population may drop 8 per cent this year and a further 2 per cent in 2010 as residents lose their jobs and leave within 30 days in accordance with the emirate’s visa laws, the Swiss bank said.

Property prices in Dubai quadrupled in the five years to September 2008, helped by new laws allowing foreigners to own property and a growing expatriate workforce.

Falling property prices now raise the prospect of rising loan defaults.

Property loans of UAE banks, including mortgages, stood at 172.74 billion dirhams (S$70.92 billion) at the end of 2008, or 17.8 per cent of gross domestic product, the central bank said.

Dubai may see ’significant consolidation among its key developers in addition to smaller less visible ones,’ UBS said.

The analyst started Abu Dhabi-based Sorouh Real Estate Co with a ’sell’ recommendation and cut Aldar Properties PJSC to ‘neutral’ from ‘buy’.

Abu Dhabi’s Aldar launches mid-income housing

Source : Business Times - 21 Apr 2009

Aldar Properties, the largest real estate developer in Abu Dhabi, is launching a 9.4 billion UAE dirhams (S$3.85 billion) mid-income housing project and the government signalled more could follow. The Al Falah project will be fully funded by the Abu Dhabi government and would be delivered in stages starting from 2011 to 2014, Aldar said on Sunday.

‘This project signals the emphasis we will place this year and next in building more mid-income housing projects because there is a requirement for it from UAE nationals,’ Aldar chairman Ahmed al-Sayegh told reporters. A section will be made available for expatriates, he added.

Abu Dhabi is facing a housing shortage that has driven up rents and stoked inflation as an oil price boom attracted expatriates faster than new homes could be built, but inflationary pressures have subsided since the global economic crisis spread and hit oil prices.

Dubai home prices fell 42% in past 6 months

Source : Business Times - 21 Apr 2009

Dubai house prices have fallen as much as 42 per cent in the past six months and are likely to drop further as new homes are completed amid waning demand in the Persian Gulf business hub, Colliers CRE plc said.

Prices will decline even as estimates for the number of new homes coming onto the market are revised lower, to about 64,800 units between now and the end of 2011, the property adviser said yesterday in an e-mail report. It had previously estimated 140,000 new units by the end of 2010.

It’s ‘reasonable to assume that as new stock continually comes online that the downward trend in the market will continue throughout 2009 and is unlikely to stabilise before the second- quarter of 2010′, Ian Albert, the firm’s regional director, said in the report.

The worst financial crisis since the 1930s has weakened the real-estate market in Dubai as banks curtailed mortgage lending and speculators pulled out. Expatriates who were fired by companies trying to weather the global recession are being forced to leave the country because of visa restrictions, Colliers said.

The rest of the Gulf, richer than Dubai in oil and gas wealth, is suffering less as crude prices lost almost US$100 a barrel from their US$147.27 peak last July. Abu Dhabi, capital of the UAE and holder of most of the country’s oil and gas reserves, remains undersupplied with houses.

It already lacks 70,000 homes and will require more than 120,000 new units by the end of 2012, the report said. Doha, the capital of gas-rich Qatar, is also short of homes as its population rose by almost 40 per cent last year to 1.6 million. Some 9,000 apartments will be ready by the end of 2010, according to Colliers.

Abu Dhabi property market tops in M-E: survey

Source : Business Times - 16 Apr 2009

Abu Dhabi is likely to be the best performing real-estate market in the Middle East and North Africa in the next 12 to 24 months, according to an annual survey by the consulting firm Jones Lang LaSalle Inc.

A ‘balanced’ growth story, oil wealth and a relative undersupply of housing make the emirate the most attractive investment market in the region, the survey said. Property prices in Saudi Arabia and Qatar also are likely to outperform markets in other countries, the report added.

The worst financial crisis since the 1930s has weakened the property market in Gulf states as banks curtailed mortgage lending and speculators pulled out.

Real-estate prices in Dubai may decline 20 per cent more after falling 34 per cent from their peak last year, EFG-Hermes Holding SAE, Egypt’s biggest publicly traded investment bank, said last month.

Though all Middle East and North Africa real-estate markets are in a ‘downturn stage’, Saudi Arabia is the least affected and Dubai, which is struggling with the global economic crisis and a major supply coming to the market, is furthest from a recovery, the report said. Property prices will fall in all markets in 2009, with the smallest decline in Saudi Arabia, and liquidity should return in 12 to 18 months and support a broad recovery by 2011, the survey said.

Investors’ yield expectations have increased to about 11 per cent from 9 per cent in the last survey, according to the report.