By Alex Delmar-Morgan
UPDATE 2: Nakheel maintains global downturn to have limited impact.
EFG-Hermes on Monday cast doubt over Nakheel’s plan to build a tower more than one-kilometre high, stating the timing was not "ideal" and questioning how the $38.12 billion project will be funded.
The Egyptian investment bank said in a Dubai real estate note that the launch of mega projects such as the Nakheel Harbour and Tower and $95 billion Jumeirah Garden City redevelopment of Satwa coincided with reduced investor appetite and tighter credit conditions.
"While these projects received a lot of attention due to their scale, we believe their timing cannot be considered to be ideal given reduced appetite for new projects as a result of the global confidence crisis," the bank said.
"Moreover, the tighter liquidity picture raises the question of funding, which was not particularly addressed."
Nakheel maintained the global economic downturn would only have a limited impact on the Middle East, but added it would "monitor the market closely" and "build to meet future needs".
It said the scheme would be funded by private land sales and "other project funding".
"Globally, we are witnessing a downturn in the market cycle. This will have an impact on the Middle East, but it is likely to be relatively small in comparison with other markets," Nakheel said in a statement to Arabian Business.
"The Nakheel Harbour and Tower development will be built over ten years during which will see more economic cycles. As always, Nakheel will monitor the market closely and make decisions that are appropriate to the market environment and build to meet future needs."
In its research note EFG-Hermes said anecdotal evidence showed sales and the number of deals made at last week's Cityscape real estate exhibition were down on previous years, given the more cautious approach from some investors and uncertainty in the markets.
However preliminary transaction figures provide a less gloomy picture, with deals registered with the Dubai Land Department during Cityscape totalling nearly 2.5 billion dirhams ($681 million) in 2008, up from 2.05 billion dirhams last year and 657 million dirhams in 2006, EFG-Hermes said.
The bank said Abu Dhabi-based developments recorded a strong uptake among investors during the show, with all 230 units released by Sorouh Real Estate within its Gate District project selling in three days.
Dubai is still blindly pressing on with ludicrously expensive luxury developments while completely ignoring the massive shortage of housing at the low and mid end. How can they hope to fill all these luxury developments if there are no low and mid end workers to provide all the services these new rich residents will need? Salaries at the low end are 3-4k AED, it is not possible to rent an apartment anywhere in Dubai for that, let alone feed yourself too. What is the government doing? Just evicting them from villas and then watching its developers build ever more expensive and ridiculous 'luxury' projects. If these people cannot afford to live in Dubai they will leave. And then it will only be the rich left. But what life will those rich have with no restaurants, bars, shops, taxi-drivers, secretaries, decorators, nurses, etc. because all of those wokers have been forced out? Of course, what will actually happen is that much of what was built and sold as 'luxury' developments will end up housing low and mid scale workers. The Marina and Greens for example will be the new Karama and Deira of the 2010s.
While Paul has a point, I wouldn't go so far as to endorse his view that Marina and Springs will inch towards 'Karama' flavour. We have all seen the power of 'monopoly' in th eproperty segment. Even during the lows of late 90's and early 2000, rental figures held up quite decently despite the obvious lack of demand. I do agree however that the blind rush for luxury segment is self destructive and grossly misplaced. The country as a whole will benefit immensely if a balanced housing mix is promoted, and each segment will compliment each other. I think the Govt backed property entities will have to take a lead in pushing the mid range housing segment which will encourage the private developers to chip in. Otherwise, the rich and famous would rather pass up Dubai properties since the cost & service differential will be lost and it would be much more interesting to look at developed holiday spports with much easier climate conditions.
I think EFG has failed to notify that the total value of the project would include a substantial estimated value of land which is in fact not an outflow. Further I doubt if the values stated are the residual values and not the cost. Both the projects mentioned above have a scheduled completion date which suggests that actual allocation of funds will be required again at a much later date. I beleive till then the global markets would have come out of recession. In the meanwhile for the short term fundings that are required it can be evidenced that GCC funds are fairly more skeptical about going towards the west and I assume moving foward money would be pulled back in the region over a phase of time. At the same time more workforce and capital will be shifting towards the emerging economies as a result of the recessions and unemployments in the west. However in the short-term they definately need to address the needs of the lower and middle income class and rightly so by the government developers themselves. I believe government entities have achieved great heights in terms of economic returns and now new parameters should also be set to assess their performance.