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Project financing 'virtually impossible' in current climate
UAE developers will find it "virtually impossible" to finance new projects because of the deepening liquidity crunch, the CEO of Dubai-based investment bank Rasmala Investments warned on Tuesday.
Ali Samir Al-Shihabi said there would be a dramatic slowdown in new projects being built, causing a "substantial and negative impact on the paper market" - schemes which are yet to be launched.
"It will be virtually impossible for developers to secure financing for new projects. Credit is expensive and difficult to get," Al-Shihabi said, speaking at the Dubai Property Society’s monthly breakfast meeting.
The global financial crisis has caused credit markets to dry up and the cost of borrowing to soar, leading to questions being raised over how developers will fund future projects.
Al-Shihabi's comments came on the same day that it emerged a top level committee had been set up by Dubai government to oversee future real estate projects.
The committee will decide on the launch of projects in a bid to help synchronise the plans of various developers to best meet future supply.
No current developments would be stopped and the committee will only look at projects still to be launched.
Egyptian investment bank EFG-Hermes in October cast doubt over the viability of recently launched Dubai mega-projects, stating their timing was not "ideal" due to reduced investor appetite and tighter credit conditions.
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Posted by Parag, Abu Dhabi, UAE on 13 November 2008 at 14:27 UAE time
Seems that recession clouds have been now hovering the sky of the UAE. Liquidity is the main concern and the same is dried up in the UAE. It is not that securing finance is difficult, it's because people don't have money to lend. Banks themselves needs borrowings to sustain daily requirements.
Real estate was the main sector on which this country's economy was riding but it has become old now and has stopped running now. Prices will definitely fall because of demand being dried up. Also, supply will remain in force since Developers will have to complete the projects undertaken by them till date.
Posted by Shilu, Dubai, United Arab Emirates on 12 November 2008 at 15:35 UAE time
While this crises is a threat to Dubai it should also be seen as an opportunity for the city. The opportunity is Dubai government rethink its strategy on how to promote Dubai... Keeping on building eventually suck the cash, and more importantly suck the land space in the Emirate and leaving nothing for other segments (other than services industries) that are more sustainable on the longer run. Examples are not odd to Dubai, for example at one point of time Dubai had the best hub in the region to re-export goods to other countries in Gulf, Jabel Ali Port. The expansion options for this entity is less or extremely expensive/costly. Thanks to Jabel Ali Palm and Arabian Canal project sucked the land that should have been better used to ensure sustainable economy in the future which these two projects will not ever be able to provide. Example of better land use they should built Dubai World Central in that land area with the waterfront kept to build a port terminal that integrate, without a need to rebuild the entire road system, with the airport.
Posted by matthewwuillemin, dubai, UAE on 12 November 2008 at 11:43 UAE time
I agree with the comments above - I see that Lloyds are not lending for apartments now due to credit crunch. Multi plex and lend lease have laid off significant numbers of staff etc etc..Even EK profits down 89% ( but based on oil costs at 120 per barrel which are now down to 60/bl. So should improve the next six.
However, the beauty of DXB is that there are 1.2 billion indians living down the road that mostly want to get out of the place -
So I think that demand will continue somewhat with Satwa being closed down etc _ I know that folks are three to a room n International city for example.. So the merry go round will stop for a while but eventually it should pick up and resume a normal market gain once speculators leave the market. like Jeble ali palm prices down 40% and back to prices two years ago.. Rents are still strong in the mid price market... but I can see why so many real estate agents are nervous!! lets see what happens in the next year or so...make sure you have some cash to ride out the storm!!
Posted by Paul, Dubai, UAE on 11 November 2008 at 13:18 UAE time
The ability of the UAE government to manage the supply is always brought up by those who believe a crash in UAE property can be avoided by such measures.
The problem is that without continued construction, the population will shrink quite rapidly as the huge numbers employed by the industry have no choice but to leave. So the UAE can try to manage new projects all it wants, all that does is kill the job market and ensure that even the existing housing stock is far more than is necessary to maintain prices.
They really have no easy way out - no one will lend them money to keep building because if they do the excess supply will kill prices. But if they stop building, the hit to the job market will cause the population to shrink and kill prices. Either way, a big crash is unavoidable.