By Courtney Trenwith
A bridge to The World, flippers and MBR City. Sanjay Manchanda, the CEO of troubled Dubai developer Nakheel comes out fighting
Sanjay Manchanda doesn’t have a reputation for speaking very often, but when he does, the earth certainly moves.
Nakheel’s CEO, who was appointed permanently last year, has one of the toughest jobs in the Gulf. He is in charge of Dubai’s biggest developer in terms of assets, but he also oversees a firm that was one of the high-profile corporate casualties during Dubai’s debt crisis, which saw house prices in the emirate decline by up to 60 percent.
Nakheel agreed a $16bn debt restructuring deal in 2011 and was forced to scale back its plans. The firm is reportedly currently in talks with lenders to extend an AED8bn ($2.17bn) loan due in 2015.
So what does he have to say?
“[Dubai] has amply demonstrated its resilience, whether it’s vision or growth, against all others. We might not be seeing so many cranes, but there is construction happening. The crisis taught us a very important rule, which I think is applicable to real estate worldwide: real estate is driven by location, location, location.”
But there’s also another key player: buyers laden with cash.
“It’s the high net worth individuals who have the ability to buy in cash,” Manchanda says. “Those who are finding it difficult to maintain and conserve their wealth back home due to the Arab Spring, or whatever reason, whether it’s the Cyprus bank crisis, are bringing it back to Dubai for its transparency, for its ability to work... in the right way. I am very, very surprised.”
As to the current state of property, Manchanda cites anecdotal evidence that suggests some house prices on the Palm Jumeirah, Nakheel’s flagship reclamation project, are up by ten percent compared to pre-crisis levels. Residential supply — in an already heavily oversupplied market — also would increase by ten percent in 2013, before slowing to three to four percent in 2014. But he also draws attention to the issue of speculators, many of which invested in Nakheel properties, contributing to the firm’s debt woes.
“Prices do not increase by 20 percent in only a few weeks. [Real estate] is a long-term investment and if you can’t reconcile with the fact, I believe you will be contributing to the speculators to stay,” Manchanda says.
Flipping — the rapid on-sale of off-plan properties — was particularly common during the Dubai boom and Manchanda believes it was a major cause of the emirate’s 2008-09 property bust, which saw prices slashed by up to 60 percent. The quick turnover of properties still under construction caused prices to escalate based only on speculation, he says.
Flipping also led to many being left out of pocket when scammers sold on a single property to multiple people. Analysts told Arabian Business earlier this year that the re-emergence of new residential developments meant the practice was making a comeback.
But Nakheel and Dubai’s other major developer, Emaar, have confirmed they have taken measures to limit flipping.
Manchanda says Nakheel now made off-plan buyers pay for the entire property with post-dated bank cheques.
“So the speculator is probably sitting twiddling his hands and fists because there is very little room to manoeuvre,” Manchanda says.
“[Speculative buying] is something which has been done [in] the past, [but now] they’re not coming out of the sales office and flipping the property at five to ten percent [more than the purchase price]. It may happen still but it’s not as active as it was.
“The frenzy of the past is [over]; we’ve taken some measures, others have taken some measures, the Central Bank has made sure that it does not let people get out of hand, [forcing them to] stop playing the speculative game in real estate.”
Manchanda says fewer speculative buyers also would help boost the mortgage market, which presently makes up only 20-30 percent of total property transactions in the UAE.
An increase in participation from financial institutions would help stabilise the market.
“Pre-crisis, real estate was very much driven by the speculators so no [financial] institution would have the confidence to come into the market,” he says.
“If that can be eliminated, hopefully in the future we will see [more mortgages] happening. It’s not going to change the dynamics overnight but surely as the market stabilises we’ll see the banks coming in.”
But whether speculators are in the market or not, Nakheel faces a serious problem with some of its flagship developments. Aside from the Palm Jumeirah, two other palm-shaped projects, the Palm Jebel Ali and the Palm Deira, are on hold. A further megaproject, the Waterfront — marketed as being twice as big as Hong Kong island — is still on the drawing board. Meanwhile, although the reclamation work at Nakheel’s The World project — a collection of islands in the shape of a world map, just off the coast of Jumeirah — may have finished, a stand-off between sea transportation specialist Penguin Marine and the developer means that those who have bought islands cannot ship materials to the site to build on them.
In an interview published in Arabian Business last month, Emaar chairman Mohamed Alabbar suggested building a floating bridge to The World to help rescue the project.
“Somebody has to put it back to life. I would probably build a bridge straight into it now — a floating bridge,” Alabbar said.
“You need a bridge to at least one of the islands and from there people can go to all the different islands. You need to bring life to it.
“I like the project. I would have probably done it [given the opportunity] and probably changed a few things. Otherwise I really like the project.”
Manchanda says he is open to the idea: “If he has a proposal of building a bridge, probably he should come and we will see how we can do it. I think he [Alabbar] is probably advocating that we are doing things right, he likes the project. He’s complimenting Nakheel.”
But Nakheel, indeed no developer, would be rushing into projects without the proven demand, Manchanda says. That's a far cry from the golden days when properties were announced one after the other.
“The lessons have been learned from the past," Manchanda says. "We as a business are being very, very cautious; we’re only bringing those projects that we believe there is the demand [for] and the ability to be sold.
“In the past, whatever project we have launched, in whatever location, has been snapped up [but not anymore]."
One project that is certainly going ahead, although not by Nakheel, is Mohammed Bin Rashid (MBR) City, a huge new venture that was announced by Dubai’s ruler, HH Sheikh Mohammed Bin Rashid Al Maktoum last year. It will include the world's biggest shopping mall, more than 100 hotels, a Universal Studios franchise and a public park larger than Hyde Park.
It is to be developed by Dubai Holding, also owned by Dubai, and Emaar Properties.
Manchanda says the economic crisis meant the MBR City project would be built over a much longer timeframe than had it been during the boom years.
“MBR [City] has been announced, [it’s a] fantastic project but please read between the lines, it’s a project which is [not] going to be delivered for a while; it is a project over a decade,” Manchanda says.
“That’s the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum. His vision [is] that we cannot just stay put, we have to move forward, we have to march.
“We learned the lessons [of the crisis, but] we will continue to showcase to the world... that we mean business.”
Elsewhere, the Nakheel CEO says the tourism sector’s growth seems unstoppable as new hotel rooms fail to push down occupancy levels or room rates.
“The average room rate has gone up to $303. According to all analysts we’ve been going through, this is the highest in three years. So guys, this is just raining cash,” he claims.
“I think hotels are the darling of this place (Dubai). Everyone wants to have or own a hotel because no matter [that] year-on-year rooms are added, the occupancy also goes up. It tells you the story.”
Manchanda, whose Nakheel has seen several hotels developed on its flagship project Palm Jumeirah, including Atlantis, says even with 9,000 new rooms expected to be added to the existing 53,000 rooms in 2013-14, the industry was soaking up demand. “If you look at 10 million tourists coming in [and] hotels adding more rooms, [the] occupancy level, even if it’s stable that means more and more people are using this sector,” he says.
It was also a golden time for the retail sector, Manchanda says. Nakheel, which owns Ibn Battuta and Dragon Mart malls, is developing Nakheel Mall on the Palm Jumeirah, and another one in Discovery Gardens.
Manchanda says the retail sector was estimated to grow another five percent next year, while the most popular malls had waiting lists of prospective tenants.
“These are good statistics by any standard, by any country.”