By Gavin Davids
Land has 'no value' for developers without capital, distressed sales to increase
More islands on Nakheel’s stalled offshore project ‘The
World’ may be coming on to the market as developers cut their losses amid
Dubai’s slumping real estate market.
Smaller developers unable to secure project financing may
prefer to sell as a loss rather than incur further operational costs, said
Matthew Green of real estate consultancy CB Richard Ellis Middle East.
A total of five
islands on Nakheel’s ‘The World’ development, a gigantic coastal replica
of the earth, have been advertised
for sale at discounts of up to 17 percent on the initial purchase price.
“They [the owners] obviously had expectations; they probably
bought it during a peak, they’ve maybe rerun numbers during the current
economic environment and worked out that the projects they had were no longer
feasible,” said Green, head of research and consultancy at CBRE.
“At that point, it’s a decision whether you continue to hold
the land and hope things improve soon so that you can develop, or you put it on
the market and try to sell it.”
Announced at the height of Dubai’s real estate bubble,
Nakheel’s ‘The World’ epitomized the emirate’s boom-time ambition.
Today, construction on the development has ground to a halt
in the wake of the economic downturn, as developers struggle to secure capital.
The majority of buyers on the
Nakheel-backed chain of islands have failed to begin work, after Dubai’s real
estate market saw prices plummet 60 percent from their peak.
Five islands are
now for sale, while at least one owner has exited the project by transferring
the downpayment to a completed, land-based development.
Nakheel, a unit
of state-backed Dubai World that has restructured billions of dollars in debt,
has said it is in talks to sell the outstanding 30 percent of the island.
A lawyer for the
troubled developer last month told a Dubai tribunal that the stalled World
wasn’t dead, but was “in a coma.”
attempting to sell their islands, it will be difficult to source a buyer while
the value of the project remains in doubt, said Green.
“Obviously, the land is being sold at a discount over the
original prices, but demand is only worth anything if you can actually go ahead
and develop it,” he said. “If you’re a developer and you can’t actually access
development finance, then obviously there’s no value to be created out of the
land beyond that.”
Dead in the water.
All the money has been used up and the islands will eventually sink into the sea, destroying all the marine life...so much for making artificial islands in the sea.
Hi to all there and to Nakheel,,,
Just a sincere suggestion to nakheel, that they can put up grass n some trees on each island and start renting it for picnic parties to corporates, individuals, families etc on hourly or day basis or even more than days for camping enthusiasts. As there are a lot of fun loving people get this opportunity of being in island and get some return to nakheel as well... and let it go until the return of economy... sounds good, as something is better than nothing...
These islands will be the future for business and will mark the rise for many resorts / projects later the next 5 years . The lucky are the persons with cash or loans to purchase now with discount that could hit 20% of the oroginal costs . The prime location in the waters facing Dubai with the perfect view day & nights .
Many people had said years ago that it was an over expanded under thought out plan to begin with. Couldn't one be used as a prison? Another could be used as a long awaited-and long promised Zoo. Another could be dedicated to a Marine biology project.
I would agree with this to some extent. Maybe 'commercialise' a cluster of 10 islands so people can experience what its like out there. Doesn't have to be 'full on' commercial. Maybe lease the islands in the winter months to the Tourism companies here.
Bring some life to the islands. Make it a destination for tourists. Structures on the islands don't have to be permanent...maybe simple Wooden huts with basic cafe's and beach restaurants...BBQ's etc.
Either way...as Waqar suggests...its better to make something than nothing. It may even attract someone to buy an island and make it a home or a boutique hotel.
These islands are not an investment, they are a liability. The cost of upkeep is tremendously expensive.
The world Islands should have been shaped better so there were LESS islands and more land mass. Even then its not a great business proposition when you factor in the cost of mobilisation of construction, construction costs, failed infrastructure planning and Island up keep/maintenance.
When you can buy whole islands in the Med, on a foundation of bedrock, for a starting price of $1mil+ it makes the World Islands look wayyyy too expensive. Zabeel, off Jumerieh beach makes for a better 'investment'
@Waqar You may want to do some numbers on the cost of keeping "grass and some trees" on an island in the middle of the sea at 50 degrees. At the prices you would need to charge I doubt that there is enough demand to do that.
@khdmohd Maybe you are right, and there is demand for that. I personally doubt that there will be an appetite for such eccentricities in 5 years, and it seems most investors share that skepticism.
But what is for real is the need to keep the islands for 5 years until that demands materializes. I suspect that the cost of maintaining the islands over that 5 unproductive years may be comparable or even dwarf the acquisition cost.
I expect the next wave of projects in Dubai will focus more on total ownership cost. Let see.
why not make it into a golf course?
Hi Simon, doing something is not necessarily better than doing nothing.
Doing nothing will cost you actually 0, doing something will have a really high cost, and some potential revenue. Unless you can make more money than you spend I see no point in doing something for the sake of doing it.
That of course depends on your expectation/hope of selling the property at a later date.
This may become a textbook example of an underwater project.