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Wed 13 Jan 2010 03:37 PM

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Dubai Investments sees UAE property market worsening

Company chief sees 2010 as 'worst year' for real estate sector.

UAE conglomerate Dubai Investments Co made a preliminary AED1.1bn profit for 2009, but could revise that downwards with provisions, and its chief executive expects the property market to worsen in 2010.

CEO Khalid bin Kalban told Reuters that the holding firm, which operates in the investment, manufacturing, dairy and real estate sectors, made an unaudited profit of AED300m ($81.68m) in the fourth quarter, but he expected some adjustments to that figure.

"There are some revaluation gains we have to deal with and some receivables in the market that we did not collect, so I think some provisioning and some revaluation losses will have to be booked," he said.

The company made a net loss of AED86.5m in the fourth quarter of 2008, when Dubai's property market was hit hard by the global financial crisis after a six-year boom.

Dubai Investments, in which the emirate's sovereign wealth fund Investment Corporation of Dubai has a stake, derives most of its revenues from the UAE and the other Gulf Arab countries.

"If the companies have lent to a major developer in the market and that developer is not paying us because of their liquidity issue ... we'll have to prepare the provisions," said Kalban.

The emirate of Dubai, which owns stakes in major local developers, received about $25bn from neighbouring Abu Dhabi and the UAE central bank in 2009 to help firms meet their obligations.

The emirate's once-booming real estate sector – which boasts the world's tallest tower and artificial islands shaped as palm fronds – came to a grinding halt at the end of 2008 as developers slowed or cancelled projects.

Property prices have fallen as much as 60 percent since their peak in the third quarter of 2008.

Dubai Investments competes with developers Emaar Properties and Deyaar in Dubai's residential sector, and launched its first residential project, Ritaj, in 2006.

Kalban expects 2010 to be a difficult year for the real estate sector and sees room for further correction with major projects scheduled to open in 2010 adding to surplus supply.

"In general 2010 will be the worst year for real estate. The end of the real estate crisis," he said. "2010 for the real estate market will be a repetition of 2009; some correction and re-valuation losses will be carried in some of the real estate companies' books because of the downturn."

EFG-Hermes expects on average 12,000-15,000 new homes between now and 2012, with actual supply delivered to be toned downwards given the slowdown in construction and underlying liquidity issues.

Kalban said the default percentage had turned out to be less severe than anticipated a year ago.

"We thought the default rate will be around 40 percent, but now we are experiencing it at around 20 percent," he said.

Kalban sees 2010 as an adjustment period. One of the main reasons 2010 would be a bleak year for property is that buying would be restrained by the lack of liquidity, he said.

"The value of property units is very reasonable now, as we are going back to 2006 pricing levels," he said. "A lot needs to be done to unlock liquidity ... That's what is strangling the market now, and it's an issue the governments have to deal with."

Kalban said he estimated a liquidity gap of $15bn in the UAE financial market.

"There is a liquidity shortage everywhere in the UAE, not only Dubai but also Abu Dhabi," he said.

Property prices are stabilising and there are fewer defaults on payments, he said, but added: "Unless extraordinary measures are taken, the real estate market will drift."

Shares in Dubai Investments closed down 2.04 percent at 0855 GMT, outperforming Dubai's index, which slipped 3.1 percent. (Reuters)

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