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Dubai Speculators Quit as Lending Drought Bursts Desert Bubble

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  • Dubai Speculators Quit as Lending Drought Bursts Desert Bubble

    Dubai Speculators Quit as Lending Drought Bursts Desert Bubble

    By Glen Carey

    Dec. 4 (Bloomberg) -- The classified ads in Dubai read like an obituary for a real-estate market that until a few months ago seemed immune from the global credit crisis.
    A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov. 25 edition of Gulf News, the United Arab Emirates’ biggest newspaper, with the headline: “DIRECT FROM OWNER DISTRESS SALE!!!” Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 percent.
    “There is panic in the market,” said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties.
    The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing.
    “Dubai is more precarious than it has ever been,” said Christopher Davidson, author of “Dubai: The Vulnerability of Success” (2008, Columbia University Press). “If the property industry collapses in Dubai, it will be finished. Dubai’s relative autonomy will come to an abrupt end.”
    The emirate’s push into luxury property developments and tourist attractions was diversification on “paper sand,” said Davidson, a professor of Middle Eastern affairs at Durham University in the U.K.
    ‘Nasty Downturn’
    Real-estate prices may drop 20 percent or more, analysts at EFG-Hermes Holding SAE, the biggest publicly traded investment bank in Egypt, said in a report this week.
    Nakheel PJSC, the Dubai state-owned developer of three palm-shaped islands in the Persian Gulf, said Nov. 30 that it is scaling back or delaying work on some of its $30 billion in projects, including the 62-story Trump International Hotel & Tower near the Mega Yacht Club on the trunk of Palm Jumeirah.
    “In such a nasty downturn, which we are seeing now, they are just not immune to global events,” said Michael Baer, founder of Dubai-based Baer Capital Partners and great-grandson of Julius Baer, who started Switzerland’s largest independent wealth manager. “Maybe the boom is over for the time being.”
    The sheikhdom may need help from Abu Dhabi and the U.A.E. to service its debt, according to Moody’s Investors Service. Dubai borrowed $80 billion to finance its transformation and make up for a lack of natural resources. It has just 4 billion barrels of oil reserves, compared with Abu Dhabi’s 92.2 billion barrels.
    ‘Healthy Correction’
    Dubai officials say the emirate can weather the storm.
    “The real estate sector is witnessing a healthy correction,” Mohammed Ali Alabbar, chairman of Emaar Properties PJSC and head of a committee studying the effects of the global credit crisis on Dubai’s economy, said in a Nov. 24 speech. “This is a consequence of global financial conditions and is inherent to the very nature of the market.”
    Dubai will meet its debt obligations, he said.
    Baer said he is optimistic the boom will return if the government takes the right actions. “There will be layoffs, they will have readjustments in asset prices and maybe they will have more careful accounting practices,” he said.
    Led by Sheikh Mohammed bin Rashid al-Maktoum, Dubai attracted investment with no income tax and free-trade zones. Dubai, the second-biggest of the U.A.E.’s seven states, benefited from an inflow of international investors eager to tap the Gulf’s wealth after a six-year surge in oil prices.
    Five-Year Boom
    Real-estate values surged fourfold over the past five years, fueled by a supply shortage and an influx of expatriates. Rising commodities prices drove inflation, which accelerated to a record 11.1 percent in the U.A.E. last year. Dubai opened its property market to foreign investment in 2002.
    Borrowers tapped mortgages for as much as 90 percent of a property’s value to buy homes on the manmade fronds of the Palm Jumeirah and villas with gardens or golf-course views in developments such as Emirates Hills, The Springs and The Lakes.
    Now the credit crunch is coming to Dubai. It’s being aggravated by oil prices that have tumbled 68 percent since reaching a record $147.27 a barrel on July 11.
    That will mean less interest in buying third or fourth homes in Dubai, said Gabriel Stein, a director at London’s Lombard Street Research, which provides economic analysis.
    “There are bound to be white-elephant developments,” he said. “If it was built on the premise of ‘build it and they will come’ then that will now turn out to be a mistake.”
    Bargain Villas
    Banks are tightening lending or freezing it altogether. Amlak Finance PJSC, one of the U.A.E.’s biggest mortgage lenders, said Nov. 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on Nov. 11 and reduced the amount it will lend for villas to 50 percent of the price, from 80 percent.
    The cost of a seven-bedroom villa on Palm Jumeirah dropped to as low as 19 million dirhams ($5.2 million) last month, from 30 million dirhams in September, according to the Dubai unit of German real-estate company Engel & Voelkers AG.
    On Nov. 20, Nakheel and its South African partner threw a $20 million party for the opening of the $1.5 billion Atlantis resort, complete with the world’s biggest fireworks display and celebrities from actress Charlize Theron to singer Kylie Minogue. The hotel’s most expensive suite costs $42,000 a night excluding breakfast.
    Two days later, the U.A.E. stepped in to shore up Dubai’s two biggest mortgage lenders, Amlak and Tamweel PJSC. They are merging with state-owned Real Estate Bank, based in Abu Dhabi.
    No Longer Immune
    Artur Khayrullin moved to Dubai three years ago to escape the Russian winter and invest in the booming real-estate market. Now he’s being forced to sell four apartments to raise cash for his family business in Moscow. They have been on the market for two months.
    “With all this oil money in the region, I thought the Dubai property market would be secure from the global problems,” the 30-year-old Bentley owner said, reached on his mobile phone on the beach. Now, “nobody is getting financing.”
    The worst may be yet to come as a glut of properties arrives on the market.
    About 70,000 units are scheduled to be completed in 2009, more than half of which were originally planned for this year and last, according to a September report from EFG-Hermes.
    Buyers willing to commit to purchases before construction are harder to find. So-called off-plan sales helped fuel the bubble with some properties passing through multiple buyers. Off-plan prices have dropped as much as 20 percent since September, according to developer Al Jabal Holdings.
    “The speculative buyers were more than 50 percent of the market,” said Eckart Woertz, chief economist at the Dubai- based Gulf Research Center. “They have disappeared.”
    Istanbul native Sebat said he’s prepared to leave after 12 years in Dubai.
    “I will be in a very big panic and will want to get out of Dubai if I don’t think things will get better,” he said.

    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    I picked that Dubai would collapse worse than anywhere on this site a couple of months ago.

    I was watching a tv show this week on Dubai. They said that Dubai will have run out of oil reserves by 2015. Who wants to own property in Dubai then? If anyone owns property there, get out now because it will only get worse.


    • #3
      Dubai island builder cuts jobs after $37m party

      Here is an update on Dubai,


      The Dubai state developer building palm-shaped islands off the city's coast says it has cut about 15 per cent of its staff (500 employees) amid a work slowdown - the clearest sign yet that the Gulf's property
      boom is hurting from the global economic slump.

      Nakheel, which is owned by the emirate's Government, said it was scaling back work on some of its most ambitious island-building projects.

      "We have the responsibility to adjust our short-term business plans to
      accommodate the current global environment," the developer said.

      The company said sales had slowed as a result of tighter liquidity globally and that buyers today - unlike the property-flipping speculators that helped fuel Dubai's rapid boom - "are more focused on long-term investment opportunities".

      Speculation had been growing that Nakheel would be forced to curtail
      some of its plans even as the company put on a brave face in response to the worldwide slowdown.

      Less than two weeks ago, the company's chairman co-hosted a US$20 million ($36.8 million) red-carpet party to launch its first palm-shaped island, Palm Jumeirah, and the Atlantis hotel located on it. Its hotel
      division this month welcomed the arrival of the cruise ship Queen Elizabeth 2, which will be turned into a floating hotel moored
      alongside the island.

      The company's continued success is seen as crucial for Dubai. Projects
      being delayed include a hotel being built with Donald Trump on Palm
      Jumeirah, and two other, larger palm-shaped islands.

      Development of an archipelago arranged like the solar system will be
      restricted to preliminary engineering studies.



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      • #4
        Less than two weeks ago, the company's chairman co-hosted a US$20 million ($36.8 million) red-carpet party to launch its first palm-shaped island, Palm Jumeirah, and the Atlantis hotel located on it.
        Cut our staff and have a $36 Million party. Gosh it must be tough over there?


        • #5
          Yeah... we had to cancel our 10 million dollar PT Christmas bash in the South of France - its tough times alright.

          Its madness really just like the ball player who got himself a nice 161 Million contract for pitching a ball.


          Last edited by Marc; 12-12-2008, 06:27 PM.
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          • #6
            Tough times hit Dubai as investment firm cuts staff

            More news about "Dubai Disneyland"

            A Dubai investment company says it is shedding 10 per cent of staff, making it at least the second government-owned employer to announce job cutbacks because of the economic downturn.

            Istithmar World said yesterday it was cutting the 13 jobs because of "external market conditions" and to match its resources with current needs.

            "We remain confident of our investment strategy for driving long-term growth and above-average returns, and have adjusted our short-term business plan to capitalize on the opportunities that will open up when the economic recovery begins," the company said in a brief statement.

            The announcement comes less than two months after one of Istithmar's sister companies, developer Nakheel, cut 500 jobs, or 15 per cent of its staff, and said it was slowing work on a number of high-profile projects. Both companies are part of state-run conglomerate Dubai World.

            Analysts have warned that Dubai's large debt load could force the booming city-state to slow its growth in response to the global economic crisis.

            Dubai World companies and other state-affiliated businesses dominate the local economy, so their continued health is seen as vital to the city-state's success. Several privately owned developers and construction companies have also announced layoffs.

            Shuaa Capital, a publicly listed financial services firm in Dubai that trimmed staff of its own last month, predicted in a report Sunday that job cuts are likely to shrink the city-state's largely foreign population by 5 per cent in 2009.

            "Hiring freeze and lay-off are probably the two most popular terms in Dubai right now," Shuaa's chief economist and strategist, Mahdi Mattar, noted in the report.

            Istithmar was set up in 2003 to pursue investments worldwide. Its holdings include stakes in banks Standard Chartered and Arcapita. It and Nakheel last year bought a 20 per cent share of circus touring group Cirque du Soleil.

            In an effort to broaden its portfolio, Istithmar opened an office in New York last October. A spokesman said that office was unaffected by Sunday's cutbacks.




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