High-end property defaults on rise - RERA

FINANCING PROBLEMS: Bin Ghalita said Dubai was seeing an increase in defaults in high-end properties. (Getty Images)

Dubai is witnessing an increase in defaults on high-end properties as financing conditions worsen and is likely to see smaller developers merge, a member of the Gulf Arab trade hub's financial crisis committee said on Sunday.

"There are more and more defaults on the high end if banks do not give mortgages and speculators are [many] in the market," Marwan bin Ghalita, chief executive of the Real Estate Regulatory Authority (RERA), told newswire Reuters in an interview. Tighter mortgage lending, a liquidity squeeze and a real estate slowdown have hit Dubai, part of the seven-member United Arab Emirates federation, in recent months.

Signs Dubai's property boom days are over are increasing as developers scale back projects, property prices fall and jobs are cut. Secondary prices in Dubai and Abu Dhabi fell 4-5 percent in October from the previous month, with Dubai's advertised villa prices falling by 19 percent after several banks tightened lending conditions in August and September, HSBC said recently.

Bin Ghalita sits on a nine-person crisis panel set up to tackle the affects of the global financial crisis on Dubai. The council reports to Dubai's ruler. He said now would be a good time for smaller developers to join forces, and that he expected some to do so.

"If you look at the market a merger between smaller companies would give it confidence. I always support... good mergers in any sector if it adds value to the sector," he said. Last month, Dubai developers Deyaar and Union Properties denied they were in merger talks but were unable to say if the government might order a tie-up.

Bin Ghalita said developers should review projects that had not yet been launched, or where only a few units had been sold. "This is not a good time to start a new project if you don't have enough liquidity to construct," he said.

"Slowing down is very important and this is what we at RERA asked the developers to do about a year back. Slow down and review is very important for the market." Mohamed Alabbar, a Dubai government official who also chairs the crisis committee, said last week the emirate would pull back on its building spree in light of the financial crisis.

Bin Ghalita said the only market that was truly suffering in Dubai was that for off-plan properties. "The only market that is not doing well is the off-plan ... because there are a lot of the speculators on some of the projects. Some of the banks are not dealing with this crisis professionally so they stopped financing," he said, noting some developers were also asking for too high a price.

Prices for "affordable" off-plan properties could pick up in the second quarter or 2009 if banks increase lending, he said. Bin Ghalita said that RERA would enforce a law on the registration of off-plan property sales, after a Muslim holiday next week. Rules for time shares were also being finalised.

"People will be selective in where they put their money," he said. It's not like before where people came to buy anywhere." (Reuters)

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