Global crisis 'will sort men from boys' in Dubai real estate

The global financial crisis will "separate the men from the boys" in Dubai's booming real estate sector as tighter credit conditions delay mega projects and send speculators fleeing for the exits.

Signs that the crunch has hit the oil-rich city, with its palm-tree shaped islands and glittering skyscrapers, are everywhere, from an Islamic lender's warning that the days of easy money are over to scaled back land reclamation projects.

"Let's face it, every Tom, Dick and Harry became a developer. Now is the time when you differentiate the men from the boys," said Mohammed Ali al-Hashimi, executive chairman of Zabeel Investments at the Reuters Middle East Investment Summit.

"At times like these, it doesn't matter if you're in real estate or whatever sector, it becomes Darwinian. The strong will survive, weak ones will fall. The good developers will become better."

And there will be fewer of them. Market commentators have cited speculation in recent weeks that two real estate firms - Deyaar and Union Properties - will link up.

Both firms have denied merger talks but were unable to say if the government was looking into ordering a tie-up amid tightening liquidity.

Meanwhile, projects are slowing as funding becomes harder to find and property prices begin to decline in a market that has boomed since 2002 when it was opened foreign investors.

State-owned Nakheel, developer of the palm islands off Dubai's coast, said recently it was slowing down on dredging work on its Palm Deira project, and other developers are likely to follow suit on large-scale projects.

The fall in global property prices is seeping into Dubai, which have fallen for the first time on the secondary market as speculators struggle to meet instalment plans, while buyers are disappearing for lack of financing.

"The fact that prices are coming down elsewhere means that the relative pricing and the relative attractiveness of investing in Dubai and a few other places in the region has been eroded," said Ramin Takin, managing director of Essdar Capital, a Dubai-based financial advisory firm, whose clients include regional sovereign wealth funds.

"I think there may be a slight decline or growth stopping...but the particulars of that will depend on how the various investors, developers and government handle the supply-demand equation for the real estate."

Dubai house price growth slowed down to 16 percent in the second quarter, compared with 42 percent in the first quarter, real estate consultancy Colliers International said last month, and expects the market to slow over the next two years.

Even before the global financial woes began making the headlines, Morgan Stanley said in August that property prices would likely fall 10 percent by 2010 as supply of real estate units outpaces demand.

"If it goes through a gradual or soft landing, it is not a bad thing for the UAE, it is not a bad thing for the long term and for the economy," Mohammed Ali Yasin, head of Shuaa Securities brokerage, part of Shuaa Capital group, told the summit. (Reuters)