Bank boss casts doubt on viability of mega projects

CREDIT CRUNCH: The head of Dubai Islamic Bank says worsening credit conditions may force some projects onto the back burner. (Getty Images)

Credit conditions for real estate projects are worsening and the viability of some developments needs to be re-examined, the head of Dubai Islamic Bank (DIB) said on Sunday.

"The days of cheap money are gone, be prepared to pay more," Khaled al-Kamda said at a real estate conference. DIB is one of the Gulf's biggest lenders and a key player in the massive developments in the United Arab Emirates.

"Real estate will suffer, big real estate projects will be revisited ... put on the back burner," he said. "The viability of these real estate projects will need to be revisited."

Kamda's comments are one of the starkest reminders to date that the credit crisis sweeping the United States and Europe will not pass the Arab peninsula by, despite billions of dollars of petrodollar inflows and strong economic growth.

Analysts expect growth in the Gulf to slow but remain robust as the energy exporting economies invest in infrastructure and real estate developments, using recent windfalls from oil and gas exports.

But tightening conditions on the international credit markets are affecting the Gulf financial sector and have led the region's biggest central banks to launch emergency measures to provide bank funding or guarantee deposits.

"With tightening credit, the developer has to revisit the fundamentals, the whole basics (of projects)," Kamda said.

The UAE, home to tourist haven Dubai and its artificial palm-shaped islands, needs to raise 50 billion dirhams ($13.61 billion) for real estate projects in 2009, he said.

Meanwhile, Oman's Chamber of Commerce and Industry called on the government to inject cash into local banks so they can finance development projects, the Ministry of National Economy said on Sunday.

Participants of a meeting hosted by the chamber's economic committee made "an appeal for financial liquidity to be provided to local banks operating in Oman, so they can cover the needs of current and future developmental projects," the ministry said in statement on its website.

Gulf Arab governments are taking measures to help their banks stave off the effects of the global credit crisis, including cutting interest rates, providing emergency funds, loosening lending curbs and guaranteeing deposits. (Reuters)

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READERS' COMMENTS

Who's gonna clean the mess after the pass over?...
Posted by Cholo Jopson, Dubai, UAE on Monday 20 October 2008 at 10:46 UAE time

The $120 billion being caused for 250 mega projects in Dubai could fall into an atrocious waste unless a stop gap measure is laid to thwart the effects of recession in Dubai's mortgage and real estate industry. The positive image painted on the local RE sector might have been blown only by drumbeaters. How would the federal government hold these real estate mavericks responsible when investments and stakes in mega developments come stumbling to the ground? Human experience tells us that drumbeaters only send the signal to the distressed when the danger is only few steps away. Who then would clean the mess after the pass over in the industry?

Market Correction
Posted by Shahab kalam, Miami, USA on Monday 20 October 2008 at 02:45 UAE time


GCC real estate market will see the market correction, may be 20 to 25% from its peak, but we can’t compare Arabian market with American or European market, Arabian market is just getting to emerge or in its infancy stages, vs. European or American market which is over build or over supplied 96% of transactions financed vs. only 15 % percent in Arabian Market. By the time Arabian market done with mega educations and tourism projects the demand will be there.

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