Friday, December 19, 2008

DUBAI - THE IMPACT OF THE GLOBAL MELTDOWN

A selection of articles in the media regarding the situation in Dubai.

Dubai faces meltdown, expat job losses feared

Dubai, Nov 12 : For the first time, fears have been openly voiced over a business meltdown in Dubai due to the global finanacial crisis, after a steep fall in realty stocks, the stalling of real estate sales, sacking of 200 employees by a leading developer and tightening of credits by banks.

In a front page report, the Gulf News reported that the Dubai stock market plummeted more than seven per cent yesterday as investors, gripped by worries of a real estate crash and a grim regional and global economic outlook, continued to be on a selling spree.

Many Indian developers like Shobha, stars like Shah Rukh Khan and expatriate businessmen have announced investments in the UAE and any likely meltdown will hit their business as well as job prospects of thousands of Indians and other expatriates.

It has been carnage in Dubai stock exchanges in the last few days as the worth of top government-owned real estate companies like Emaar, which had planned huge developments in India with a Calcutta-based real estate firm, continued rapid downward slide, declining 9.88 per cent to close at 3.74 Dirhams.

"Dubai is bearing the brunt of the regional and global market weakness... The market perception is that Dubai is seen as the "weakest link" within the GCC in this environment," said Khalid Masri, executive partner, Rasmala Investments. The combined loss of market capitalisation since last Sunday is about 65 billion Dirhams.

Vyas Jayabhanu, head of Abu Dhabi-based Al Dhafra Brokerage said a series of news yesterday created havoc. "Investors didn't take kindly to the news that real estate major Damac has laid off 200 employees. And then there was another big one that Emirates airlines profits dived by 88 per cent...Hence, investors, who came in today, did not believe Emaar chairman Mohammad Al Abbar's statement that UAE's GDP will contract from 14 per cent to nine per cent. They certainly feel it is going to be worse," he added.

In the last two months, expatriates, including a majority of Indians had sent home four billion Dirhams taking advantage of low rupee exchange value. Most of the funds were raised through easy personal loans from banks and any large scale layoffs will mean losses to banks.

Elsewhere in the region, a similar gloom pervades investors. Saudi Arabia's Tadawul Index closed 5.2 per cent down and Kuwait's stock exchange, the second largest in the Arab world, dropped 2.6 per cent. Qatar and Bahrain stock exchanges declined 6.25 per cent and 2.74 per cent, respectively.

Yesterday, leading UAE bank Mashreq announced that it was open to merger. Meanwhile, a top banker from cash rich Abu Dhabi, the CEO of Abu Dhabi Commercial Bank Ervin Enox said his bank will not allow defaults from Dubai-owned government companies on credit payments

Global financial crisis hits Dubai
Wednesday, November 12 2008

Dubai, Nov 12: Dubai city for the first time witnessed fear of financial meltdown on Tuesday, Nov 11 after the steep fall in realty stocks, the stalling of real estate sales, sacking of 200 employees by a leading developer and tightening of credits by banks. Also the fear was openly voiced over a business meltdown due to the global economic crisis.

On Tuesday, the Gulf News reported that the Dubai stock market plummeted more than seven per cent on Tuesday, Nov 11 as investors, gripped by worries of a real estate crash and a grim regional and global economic outlook, continued to be on a selling spree. Many Indian developers like Shobha, stars like Shah Rukh Khan and expatriate businessmen have announced investments in the UAE and any likely meltdown will hit their business as well as job prospects of thousands of Indians and other expatriates.

It has been carnage in Dubai stock exchanges in the last few days as the worth of top government-owned real estate companies like Emaar, which had planned huge developments in India with a Calcutta-based real estate firm, continued rapid downward slide, declining 9.88 per cent to close at 3.74 Dirhams.

"Dubai is bearing the brunt of the regional and global market weakness... The market perception is that Dubai is seen as the 'weakest link' within the GCC in this environment," said Khalid Masri, executive partner, Rasmala Investments. The combined loss of market capitalisation since last Sunday is about 65 billion Dirhams.

Vyas Jayabhanu, head of Abu Dhabi-based Al Dhafra Brokerage said a series of news yesterday created havoc. "Investors didn't take kindly to the news that real estate major Damac has laid off 200 employees. And then there was another big one that Emirates airlines profits dived by 88 per cent...Hence, investors, who came in today, did not believe Emaar chairman Mohammad Al Abbar's statement that UAE's GDP will contract from 14 per cent to nine per cent. They certainly feel it is going to be worse," he added.

In the last two months, expatriates, including a majority of Indians had sent home four billion Dirhams taking advantage of low rupee exchange value. Most of the funds were raised through easy personal loans from banks and any large scale layoffs will mean losses to banks.

Elsewhere in the region, a similar gloom pervades investors. Saudi Arabia's Tadawul Index closed 5.2 per cent down and Kuwait's stock exchange, the second largest in the Arab world, dropped 2.6 per cent. Qatar and Bahrain stock exchanges declined 6.25 per cent and 2.74 per cent, respectively.

On Tuesday, Nov 11 leading UAE bank Mashreq announced that it was open to merger. Meanwhile, a top banker from cash rich Abu Dhabi, the CEO of Abu Dhabi Commercial Bank Ervin Enox said his bank will not allow defaults from Dubai-owned government companies on credit payments.

Dubai realty meltdown stumps expat Indians
12 Dec 2008, 0530 hrs IST, Malena K Amusa, ET Bureau

NEW DELHI: When xxxx and xxxxxx moved from New York city to Dubai two years ago, they were greeted by the uncomfortable heat of
the desert emirate’s red hot property market. It took the couple, who are in their 30s and working for top corporations in Dubai, six months to secure an apartment mortgage as wealthy investors
from oil-rich Gulf neighbours and Russia were driving up property prices to dizzying heights. So, when they finally moved into their home earlier this year, they were elated.

But two weeks ago, they were facing a chilling new reality after the property market had cooled off substantially: they got a letter from their bank informing them that their monthly mortgage bill just went up from 18,000 dirham (dh) a month (Rs 2.47 lakh) to Dh 25,000 (Rs 3.43 lakh).

Citing global financial downturn, the bank, which takes its interest-rate cues from the cost of borrowing globally, had spiked the couple’s interest payment.

“Now, if one of us is laid off, we may have to give our keys to the bank,” rues xxxx Dubai — Asian realty’s ‘Promised Land’ — is showing symptoms of acute financial strain, causing big property developers like Nakheel to lay off hundreds, tycoons like Donald Trump to delay multi-million dollar projects, and average property buyers to balk at regulations that fail to shield investors from global fluctuations.

The oil-rich Gulf region, many had expected, would be spared the financial turmoil enveloping the rest of the world.

But crude oil prices fell from a peak of nearly $150 per barrel to less than $50, weakening Dubai’s financial backers and leaving the emirate, with little mineral wealth, in the doldrums.

“Unlike any part of the world, guys like me can’t walk out of a mortgage here,” says Abhy, a part-time property investor from Kochi, who wanted to protect his full identity. In July, Abhy, who works as a business consultant, invested 15% in cash in a 1,200 sq ft flat that cost Dh 1,700 per sq ft, in addition to getting a mortgage. His plan was to sell the flat in 2010 at a much higher rate. Today, he’s not sure he’ll get Dh 1,400 per sq ft even if he is lucky enough to find a buyer.

Abhy also had to give his bank an undated cheque for Dh 3.5 million, which the bank would cash in case he defaulted on his mortgage payments. That cheque would bounce, Abhy says. And most unsettling, his bank considers a change of job a default. A slowdown in Dubai’s economy could mean a fall from grace.

A recent report by UAE property assessment agency RichVille blames Dubai for doing little to protect investors such as Abhy.

“The central bank did not reduce its interest rates when all western countries reduced theirs,” the report said. Banks were discouraging construction and end-buyer finance “by significantly increasing interest rates, increasing required loan down payments to more than 35%, and finally making the terms for accepting loan applications very difficult.”

But hope seems to be on the horizon. Latest news reports indicate that banks are trying to make it easier to get a mortgage to spur buying.

And then there is the spectre of layoffs. Nakheel, one of the top three players in Dubai realty, laid off 500 employees — 15% of its workforce — in November. Morgan Stanley shed nearly 15% of its staff in Dubai and Lehman Brothers closed its office in Dubai’s financial district after it filed for bankruptcy protection in the US.

There are some lucky ones, too. Samir Sen, a civil engineer living in Dubai for 23 years, made a Dh 200,000 profit after buying a studio flat in 2006 and selling it last year. He’s now holding a second studio flat to develop and sell in two years. He is of the view that while credit is tightening, and people — who can’t afford to hold a home — struggle to sell, the housing market “is not going up or down; it’s stable.”

Venu Rajamony, India’s Consul General in Dubai, says the economy is strong, but adds that many Indians, mainly construction workers, are heading back home. There are 600,000 Indians living in Dubai, he said. Many are construction workers.

Abbas Ali Mirza, president of the Dubai-based Indian Business and Professional Council, an association of at least 700 business leaders, says: “Everything appears fine and normal.” Representatives of property development agencies Damac and Emaar declined to comment.

Meanwhile, XXXX and XXXXX consider their options. And one of them is to open a bedroom to a temporary tenant.

Dubai property giant sacks 500 as finance crisis bites
2008-11-30


DUBAI (AFP) - The Dubai property giant behind such grandiose projects as a one-kilometre tower and artifical palm-shaped islands said on Sunday it has fired 500 staff as the global economic crisis begins to bite in the oil-rich Gulf.

Government-controlled developer Nakheel, one of the biggest employers in the booming desert city-state, also said it would be scaling back work on some of its projects.

"Approximately 15 percent of the total workforce, which amounts to 500 employees, was made redundant," it said in a statement, describing the move as "a responsible action in light of the current global market conditions."

It is the largest job cut in the wake of the global financial meltdown to be announced in United Arab Emirates and in Dubai, a city of skyscrapers, opulent hotels and malls which hosts hundreds of thousands of foreign residents including Westerners and Asian workers.

"We have the responsibility to adjust our short term business plans to accommodate the current global environment," said an unnamed spokesperson quoted in the statement.

"The redundancies are indeed regrettable, but a necessity dictated by operational requirements which are in turn dependent on demand," the spokesperson added.

Earlier this month, Damac Group, owner of the region's largest private developer Damac Properties, said it cut 200 jobs or 2.5 percent of its workforce.

Nakheel is developing several iconic projects in Dubai, including three palm-shaped man-made islands, only one of which is completed, and a cluster of islands in the shape of a map of the world.

It also announced last month a jaw-dropping plan to build a one-kilometre-high (3,280 feet) tower which would overshadow the still unfinished Burj Dubai, already the tallest on earth.

Nakheel also develops residential and commercial property, whose sales thrived after the sector was opened to foreign investors a few years ago.

Last week, Nakheel jointly hosted a star-studded 20-million-dollar bash to celebrate the opening of the Atlantis Hotel on its Jumeirah Palm island, with a huge firework display.

Top officials in Dubai insist the emirate's real estate sector -- a major engine of economic growth in recent years -- will weather the global crisis, but investors appear to have lost confidence in the market which was until recently a great magnet for investments.

Mohammad Alabbar, head of Dubai's Advisory Council, which was formed to deal with the impact of the financial meltdown, hinted last week that Dubai's major developers will use their control over supply to curb an increasingly clear drop in property prices.

"Our priority is to manage supply in the real estate market to ensure equilibrium," he said.

Fears however loom over the future of Dubai's economy after a double-digit growth registered in the past few years, with concern rising over the emirate's accummulated foreign debt amid the global credit crunch.

The emirate's bourse has been taking severe beating since the beginning of the financial meltdown, mainly due to a nosedive in real estate shares.

Despite occasional surges, the Dubai Financial Market is now about 67 percent lower than its level at the the start of the year, while the market leader, Emaar property giant, has seen its shares drop to record lows.

Foreigners number over 4.7 million, or over 84 percent of the UAE population, while Indians alone account for 42.5 percent of all expatriates, according to an unofficial study released this year.

Expatriates from the Indian subcontinent and southeast Asia also make up around 75 percent of the workforce, the study said.

There are also about 120,000 Britons representing the largest Western community in the UAE, with 100,000 living in Dubai alone.


After months of press releases and government promises that there will be no such thing as a bubble in Dubai, the big boys of Dubai are finally saying, “Beam me up Scotty, I think I’m in trouble.”

“Trouble,” would be the understatement of the year, and the developers are making it clear they are not one whit interested in the fortunes of the smaller investor. Despite the recent introduction of laws written to protect smaller investors, Dubai’s property developers are thinking up new ways of avoiding any responsibility and screwing every last penny possible from the situation as fast as the new laws are passed.

MiNC, developer of Prodigy 1 in Jumeirah Village South has put a new proposal to their current investors:

Pay more than the agreed price, or we will cancel the project and keep your deposit.

The wording was slightly different, but that is what it amounts to. According to MiNC, two banks have withdrawn funding and “the project is no longer financially viable. Costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project.”

Gulf News
It is actions such as this that will finally deflate what is left of the Dubai bubble. A lot of confusion is surrounding Article 11 under Law 13, which guarantees investors - “In the case of canceling the contract, the developer may retain 30 per cent of the ‘contract’s value’, and the rule of (30-70 per cent of the money paid) shall be applied on amounts exceeding 30 per cent.”

Key words here are “contracts value,” not “monies paid,” as the Article originally stated. Arguments abound and opinions are divided amongst those who feel that Dubai no longer needs outside investors and the emphasis of government intervention should be in favor of protecting the developers, and others feeling (as we do) that the smaller investor is vital if Dubai wishes to be anything more than a “Disneyland in the desert.”

As things stand at the moment, if a small investor defaults (as is starting to happen on a large scale), the developer keeps 100% of the money in some cases, and developers are simply refusing to answer questions or deal with inquiries. A number of smaller investors are attempting to band together in an effort to at least recover the “70% of monies paid.” One such group can be contacted here:

investorslaw13@hotmail.com

Elsewhere, prices are falling dramatically, with distressed properties being offered at 40% discounts on Palm Jumeirah, which is still massively over-priced. If falls in the US and Spain are any indicator, some analysts are expecting Dubai’s prices to fall anything as much as 60% in the next few months.

Other property websites are now starting to report on Dubai’s bursting bubble, and here is a selection:

Reuters - Dubai real estate suffers as distressed sales rise
AOL Dubai Property boom halts as prices fall and jobs go

According to Mohannad Sweid, CEO of Depa, some of Dubai companies are in “denial” about the viability of projects in light of the global financial crisis.

We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they’re either not announcing it or they’re saying it’s going to be delayed. We cannot deny the effect [the crisis] has been having, we are a part of this world and I believe it’s just not right to say we haven’t seen any impact. What we have had in the GCC in the last three years is the difference between reality and non-reality. Our market research showed there will be 280 new hotels built over four years within the GCC. That was advertised all the time… If we look at the reality - how many hotels have been delivered - it’s hardly more than five or six hotels a year.

In terms of risk to his own firm, Sweid was confident that infrastructure projects would still go ahead.

In this region, a lot of infrastructure is not developed yet and these elements of infrastructure have to be developed - it’s not a choice,” he said, citing Dubai’s new metro system as an example. He added that Depa was still on track for growth for next year, but the “fears” were for 2010 and 2011.

The real question is not whether the Dubai bubble has finally burst, but more how far it will deflate. With property prices quoted as having risen somewhere in the region of 76% over the last year, a major correction is likely. Already prices have fallen 40% in most developments, and we feel it is going to deflate a lot faster than it blew up.

Filed under Dubai by Mark Knowles

2 comments:

Brad Zurich said...

Now look at the Indian couple who moved from New York to Dubai. They are having to pay more for their mortgage. Life is really funny. When they did not have an apartment of their own they were scampering and today they wish they would have waited for the prices to come down.

sanjay said...

The best part of enjoying your stay in a villa is the feeling of control. You have complete authority over your place,just like your own home. You wouldn’t want to be stocked up in a hotel with several other strangers around you when you can have the element of privacy at your door service. Even in the villas you are offered the service at any point of time in a day.

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