Arabtec chief predicts fall in UAE rental prices

Soaring rental prices for accommodation in the UAE will start to fall once more residential developments for rent come on line, the chief executive of Arabtec Holding has said.

Riad Kamal said more developers would have to take extended loan agreements from banks as they became more reliant on income from property rents as the housing sales market continues to slow.

But Kamal said an order book worth 50 billion dirhams ($13.6 billion) would ensure Arabtec, the largest UAE construction firm by market value, at least maintains its current turnover of just over 8 billion dirhams ($2.2 billion) for the next two and a half years

He said he was optimistic there would be no defaults on major projects Arabtec was building for its clients such as Emaar, for which it is building the iconic Burj Dubai and residential developments.

“Even if we don’t pick up any further work we can maintain at least a minimum of our current turnover for 2008 at least for a good two and a half years from today with our current backlog,” Kamal said.

“In the short term we believe it will be business as usual as we do not see any signs of our major institutional and public clients scaling down any of the projects in which we are involved.

"This is due largely to the fact that if you take Emaar, for example, their units are already sold so they want to deliver them according to schedule. If there are any defaults they will be minimal and there shouldn’t be any difficulties in them fulfilling their financial obligations to us.”

Kamal predicted there would be a “healthy correction” of “very unreasonable” accommodation rents in the UAE as more residential developments were completed.

“There is a huge demand for rented accommodation and that’s what is escalating the rent today,” he continued. “What we are going to see is a healthy correction as more accommodation becomes available, helping to reduce the rents which today are just very unreasonable.

"And the undersupply of liquidity means there will be less buyers in the market and more extended loan agreements to the developers so that they can rely on cashing in on rents rather than cashing in on sales.”

But he said he did not expect the credit crunch to hurt the Gulf in the same way as the US and European markets had been affected because the banking system operated differently in the region.

He said Arabtec was considering tendering for new residential and infrastructure projects within the UAE but refused to specify which ones.

Kamal said a third of the $13.6 billion projects Arabtec was involved in were outside Dubai and Abu Dhabi.