Moody’s cites vast supply in pipeline, scarce lending

(DUBAI) Persian Gulf real estate markets will probably worsen in the coming months as a ‘vast’ supply of properties becomes available and lending remains scarce, Moody’s Investors Service said.

Moody’s gave the industry a negative outlook for the next 12 months to 18 months and has downgraded the ratings of all Gulf Cooperation Council-based companies affected by real estate, analyst Martin Kohlhase said in a report yesterday.

‘The supply-demand imbalance in commercial property, and to some degree in residential units, is likely to grow worse as vast supply meets slack demand,’ he said.

Gulf property companies are struggling after the global financial crisis choked off lending, making it more difficult for them to finance developments and depriving the market of homebuyers.

The average long-term debt rating for the companies is Ba1, one step below investment grade. In April 2009, the average was A2, five steps above ‘junk’ status, according to the report.

The GCC is made up of Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait.

The market in Dubai, part of the UAE, has worsened the most, with house prices falling by 50 per cent, according to the report. Emaar Properties PJSC, Dubai’s largest developer, is rated B1, four levels below investment grade, and is on watch for further downgrade, according to the report.

Government intervention could improve prospects in the region, Mr Kohlhase wrote. Moody’s is unlikely to give the GCC countries a ‘stable’ outlook in the near term, he said.

Saudi Arabia is the ‘brightest spot’ in the region, with a young and growing population bolstering the residential market, Moody’s said.

The peak year for debt coming due will be 2012, meaning companies will have to address refinancing over the next 18 months, Mr Kohlhase wrote.

Saudi Arabia’s Dar Al-Arkan Real Estate Development Co, for example, has US$1 billion of Islamic bonds, or sukuk, due to be repaid in July 2012, according to data compiled by Bloomberg. — Bloomberg

Source: Business Times, 25 May 2010

It is to be used to pay Arabtec’s UAE suppliers and subcontractors

(ABU DHABI) Dubai builder Arabtec expects cash from developer Nakheel’s debt restructuring by end-June, while payment in the form of bonds could take several months, its chief executive said yesterday.

Riad Kamal declined to say how much money Arabtec, the UAE’s largest builder by market value, would get from Nakheel, a unit of state-owned conglomerate Dubai World, which announced last week that its core creditor banks had accepted proposals to restructure US$23.5 billion in debt. As part of the proposals, Nakheel’s trade creditors have been offered full repayment, with 40 per cent in cash and 60 per cent in the form of an Islamic bond, or sukuk, which has a 10 per cent annual return. ‘The 40 per cent (cash) will come probably in June, and the 60 per cent bonds in three to four months,’ Mr Kamal told reporters, adding that the repayment offer was a ‘fair deal’.

Mr Kamal said that Nakheel’s cash would be circulated to pay Arabtec’s suppliers and subcontractors in the United Arab Emirates, adding that the firm would not need to raise additional cash for its projects outside the Gulf state.

‘Our investments outside the UAE don’t need cash. They are self-financed, more or less.’

Arabtec last week said that it had signed on to Nakheel’s debt repayment offer and urged others to follow suit. Mr Kamal also said that the ‘door is still open’ for future co-operation with Abu Dhabi’s Aabar Investments after both firms called off their US$1.7 billion merger in April.

Analysts said that the deal, which would have seen Aabar take over Arabtec, was no longer necessary for Arabtec in the wake of Dubai’s debt repayment plan.

Earlier yesterday, Mr Kamal said that Arabtec expects to have 10,000 employees in Saudi Arabia – up from 6,000 now – by the end of the year as the property company seeks to diversify its operations away from crisis-hit Dubai.

Arabtec is expanding overseas to diversify its portfolio away from Dubai’s once-booming property sector, which has been hit hard by the global financial crisis as developers slow or cancel projects and jobs are slashed.

Property prices have been under pressure since the financial crisis and a slump in oil prices ended a six-year economic boom in the Gulf region.

‘We are not willing to cut down on margins; we are looking at markets outside the UAE,’ Mr Kamal said.

‘We are moving into Angola and Turkmenistan and North Africa, where margins are healthier.’

The builder reported a 17 per cent slide in net attributable profit to 134.5 million dirhams (S$51.4 million) in the first three months of this year. — Reuters

Source: Business Times, 25 May 2010

But there are few takers for luxury Valentine packages

It may not be possible to buy love. But at least you can spend a fortune trying to do so in the United Arab Emirates, where luxury hotels are offering Valentine’s Day specials for mega-rich romantics.

Lovey dovey in Abu Dhabi? The Emirates Palace, which bills itself as a seven-star hotel, has the priciest Valentine offer – a seven-day stay for a cool million bucks.

‘Time to show your love to your love,’ the hotel says. Takers will have a private butler and a chauffeur-driven Maybach luxury car at their disposal, which can be ‘tailor-made to your design’.

Also included in the million-dollar deal are a romantic dinner in-suite or on a yacht at sea, helicopter flights, use of the Abu Dhabi golf course, horse riding, watching camel racing, and even making your own perfume.

A private jet is also on call for a quick shopping trip to other countries in the region during the week.

The daily Gulf News quoted sources close to the hotel as saying that a Russian businessman had expressed interest in the package.

But an employee told AFP that variations on the deal had been offered for some time, and ‘we didn’t expect to sell any of the packages’ because of the world economic crisis.

The hotel does offer a more modest three-day Valentine’s deal for about 500,000 dirhams (S$193,000). This includes in-suite dinner with live music – and a diamond necklace for the lady.

East along the coast in Dubai the prices may be lower, but opportunities to lavish largesse on one’s loved one are not hard to find.

The Palace hotel – near Burj Khalifa, the world’s tallest building – offers a deal entitled the ‘Sweet Suite Package’ for 9,999 dirhams.

The couple stays in one of the hotel’s Royal Suites, where they are treated to a candlelit dinner, French champagne and a chocolate fountain.

Spa treatment included to massage away some of those extra acquired calories.

However, there there have been few takers so far, with one hotel employee telling AFP that there has not been much interest because ‘it costs too much’.

The Kempinski Hotel in Dubai’s Mall of the Emirates has a 5,600 dirham offer, which includes a night in a suite, a four-course candlelit dinner, ‘pampering at the spa’, and breakfast for two.

And the Atlantis hotel, on the Jumeirah Palm artificial island, is offering Valentine’s packages ranging from 3,840 dirhams to 6,114 dirhams, depending on the suite.

The offer includes spa treatment, champagne, a platter of chocolate-covered fruit and access to watery attractions – including a swim with the hotel’s dolphins.

Source: Business Times, 11 Feb 2010

Saudi Arabian central bank governor Muhammad al-Jasser said that the kingdom would issue its first mortgage law in the next few months, boosting the real estate industry and allowing banks to diversify their balance sheets.

‘I’m optimistic that in the next few months, the law will be issued,’ said Mr al-Jasser yesterday.

‘It will be a qualitative jump in the way we finance housing in the country and in the way we use financial instruments that are linked to the housing market.’

Saudi Arabia’s property market is suffering from a shortage of housing units, shielding the kingdom from corrections in the real estate markets of other Gulf Arab states such as the United Arab Emirates, Banque Saudi Fransi said in a report on Jan 13.

Real estate prices in Dubai, the second-largest emirate in the UAE, plummeted around 50 per cent from their peak, according to Deutsche Bank estimates.

The Syariah-compliant legislation which has been discussed for the past two years will consist of five parts, Mr al-Jasser said. It will define the terms of mortgages, how they are designed, how they are granted, how companies are licensed and how procedures will be enforced.

The law is on the way to the council of ministers before going to the Shura Council, the country’s consultative assembly, for final approval, he said.

‘We expect demand for new housing will continue, steered by the indigenous population,’ John Sfakianakis, Riyadh-based chief economist at Banque Saudi Fransi, said in the report.

‘In most areas of the kingdom, a shortfall in the number of housing units available persists, which has placed upward pressure on consumer price inflation in the past two years.’

Bank lending in the world’s largest oil exporter slowed following the global credit crisis and the default of two Saudi family conglomerates: Ahmad Hamad Algosaibi & Brothers Co and Saad Group.

Eighty banks, including BNP Paribas and Citigroup Inc, are owed at least US$15.7 billion, sparking a flurry of litigation.

‘Hopefully, the mortgage law will ensure the production of sufficient sukuk and corporate bonds that will be held by banks in lieu of government bonds,’ Mr al-Jasser said, when asked if the government planned to issue longer maturity bonds.

Islamic bonds, or sukuk, are asset-based securities that pay profit distributions to investors as Syariah law forbids interest payments.

Source: Business Times, 26 Jan 2010

(SINGAPORE) Singapore’s two major conglomerates with interests in the Middle East yesterday allayed fears of any fallout from Dubai World’s credit woes.

‘Keppel Corp does not have any exposure to Dubai World from its projects in the Middle East,’ said a Keppel spokesman.

Keppel, through its infrastructure arm Keppel Integrated Engineering, is involved in Qatar’s $1.5 billion Doha North Sewage Treatment Works – the largest greenfield wastewater treatment, water reuse and sludge treatment plant in the Middle East.

Keppel also has a $1.7 billion domestic solid waste management centre in Qatar, which is due to come on stream soon.

Major utilities and infrastructure player Sembcorp is also seen as unlikely to suffer any problems as a result of Dubai World’s troubles.

Sembcorp’s contracts are not with Dubai World, and its plants in the Middle East are for power generation and water treatment – both essential utilities.

Sembcorp has a 40 per cent stake in the US$1.7 billion 887 megawatt Fujairah 1 independent water and power project (IWPP) in Fujairah, another of the UAE’s seven emirates, which are all separately run entities.

Sembcorp also recently secured finance from a consortium of international banks – none of them Dubai-linked – for the US$1 billion Salalah IWPP in Oman. This is scheduled to start operating in the first half of 2012.

Township development, building and infrastructure consultancy Surbana also said yesterday it will see little effect on its Middle Eastern operations.

‘We do not really have projects in Dubai,’ said a spokesman. ‘Most of our Middle East projects are in Abu Dhabi.

‘Because of the economic situation, some of our Middle East projects are facing some slight delays but they are still on-going.’

Surbana is lead consultant for the US$109 million Abu Dhabi Tourism Authority Headquarters, the US$110 million Abu Dhabi Corniche Waterfront Hotel and the US$230 million Emirates Morocco Hotel, among other projects.

The consultancy is also involved in the US$435 million redevelopment of Abu Dhabi’s Al Bateen district.

Keppel shares closed 28 cents lower at $8.10, while Sembcorp shares ended the day 10 cents lower at $3.70.

Source: Business Times, 1 Dec 2009

(SINGAPORE) City Developments Ltd (CDL) says it is open to exploring the possibility to raise its stake in the South Beach project – in which Dubai World also has a share – if such an opportunity arises.

‘South Beach is an iconic development and one which has excellent potential,’ a CDL spokesperson noted.

She added that the joint venture company that owns the South Beach site may also choose to issue further notes if more funds are required in due course and it is open to any note holder and/or shareholder to subscribe for the notes.

CDL bought the South Beach site in 2007 jointly with Dubai World and El-Ad Group for $1.69 billion. In June this year, the JV company refinanced an earlier $1.2 billion land loan through an $800 million two-year secured bank loan and $400 million five-year secured convertible notes. Hong Kong’s Nan Fung group subscribed for $205 million of the notes while CDL mopped up the remaining $195 million.

Dubai World is now asking all providers of financing to itself and its unit Nakheel to ‘standstill’ and extend debt maturities until at least May 30, 2010.

South Beach will have offices, hotels, residences and and retail space. Some market watchers suggest that in addition to the options outlined by CDL yesterday, another avenue for the JV company to fund the site’s development would be to sell all or part of the project. If the apartments are launched and sold, sales proceeds would help to fund part of the development’s construction. The hotels could also be divested to CDL’s hotel units Millennium & Copthorne Hotels plc and CDL Hospitality Trusts, or a third-party buyer. Alternatively, the entire development, when completed, could be spun off into a real estate investment trust. Rough calculations show that Dubai World and El-Ad would have pumped in about $200 million each of equity in the project. As at Sept 30, 2009, CDL had cash and cash equivalents of about $979.5 million at group level. Market watchers reckon the South Beach consortium partners may have received offers for their stakes from potential buyers.

CDL said in August that South Beach’s construction is likely to begin around Q3 2010, with CDL and Nan Fung probably the ones that will pump in further money. El-Ad and Dubai World are likely to be passive investors who may see their share in the project diluted.

Source: Business Time, 1 Dec 2009

Saudi Arabia will face a ’substantial’ housing shortage by 2015 as a growing population and rising employment fuel demand, Deutsche Bank said.

The kingdom will require an estimated 1.2 million additional homes by 2015, compared with a projected supply of just 900,000, the German bank said in a report yesterday. That amounts to a shortfall of 25 per cent.

‘Government initiatives to enhance living standards and improve mortgage access will boost affordability and unlock huge latent demand,’ Dubai-based analysts Nabil Ahmed and Athmane Benzerroug wrote. The kingdom’s market ‘is the strongest in the Gulf’ and has remained relatively resilient.

Saudi property prices were down 15 per cent year-on-year as of the third quarter, compared with an average slump of 40 per cent in other Gulf markets, the report showed.

Source: Business Times, 10 Nov 2009

Analysts expect 50% drop in 2009 from their peaks last year

(DUBAI) Dubai house prices appear poised to fall another 10 per cent in 2009 as financial woes linger, a Reuters poll showed, in stark contrast to more mature markets in Britain and the United States which are showing signs of life.

Residential property prices in the former boomtown have yet to reach a bottom and have a 20 per cent chance of picking up before 2011, according to the median forecast of nine analysts at banks, investment firms and research institutions.

The two respondents who said they thought there was more than a 50 per cent chance of prices picking up before then expected a rise in the third and fourth quarters of 2010.

Prices in the Gulf emirate, which boasts the world’s tallest building and man-made islands in the shape of palm fronds, are seen falling 50 per cent in 2009 from their peaks late last year, and likely a total of 60 per cent by 2010, which would amount to a 20 per cent fall from current levels, if realised.

‘The real estate market remains subdued as oversupply concerns and lacklustre demand continue to characterise the marketplace,’ said Matthew Green, head of research and consultancy at property services firm CB Richard Ellis in Dubai.

Dubai is expected to be oversupplied by 32,000 new homes by end 2010, according to recent Deutsche Bank figures.

‘Sales and lease rate declines are starting to abate but further nominal declines could be realised before year end,’ Mr Green said.

Two out of nine respondents said they expected Dubai property prices to hit a bottom in the fourth quarter of 2009, four predicted the first half of 2010 and two in the second half. One expected prices to reach a bottom in 2011 or later.

‘We have been consistent with our view that the market will bottom out substantially in the fourth quarter of 2009, but there will be some tail off into the new year,’ said Chet Riley, an analyst at Nomura Investment Bank.

Property prices in the emirate have fallen sharply since late last year, when the global financial crisis and a drop in oil prices ended an economic boom in the Gulf Arab region.

Prices suffered the biggest 12-month fall among global property markets, but declines are easing as global markets recover, real estate brokerage Knight Frank said in September.

The United Arab Emirates’s construction sector has been hardest hit by the downturn, with more than 500 projects on hold or cancelled, and Dubai has been the most severely affected emirate, Dubai-based research firm Proleads said in September.

Dubai, the Gulf’s trade and tourism hub, is one of seven members in the UAE federation. Abu Dhabi is the capital emirate.

The Reuters poll found that residential rents in Dubai are seen falling by 45 per cent for full year 2009 and a further 10 per cent in 2010.

Three out of seven respondents expected rents to fall as much as 50 per cent in 2009 and one by 30 per cent in 2010.

‘Relative to more established markets rents have normalised but may come under some pressure again in 2010 after the ‘mini rally’ we are currently seeing,’ said Nomura’s Mr Riley.

House prices in neighbouring Abu Dhabi, the UAE capital and home to most of the country’s oil, are expected to fall 33 per cent during full year 2009 and are expected to decline 3 per cent in 2010, the Reuters poll showed.

One analyst expected prices in the capital to fall as much as 40 per cent in 2009.

Both figures have declined from the last poll, published in June, when analysts forecast a fall of 25 per cent in 2009 and prices to remain flat in 2010. — Reuters

Source: Business Times, 6 Oct 2009

(DUBAI) A downturn in Dubai’s residential properties market appeared to be nearing a bottom in the second quarter as the rate of price declines eased and transaction volumes stabilised, a Jones Lang LaSalle researcher said.

Dubai’s once-booming property sector has been hit hard by the global financial crisis, but the pick-up in more mature markets such as the US and Britain, is starting to boost investor confidence.

‘The stabilisation is showing that the market is reaching the bottom and sales activity is starting to come back in,’ Craig Plumb, head of research at Jones Lang LaSalle Middle East and North America told Reuters on Sunday.

‘Prices are reaching a level where people think they are willing to buy,’ said Mr Plumb, adding that sales activity was expected to increase in the next six months. Average asking sale prices fell by about 24 per cent in the second quarter from the first quarter, but the rate of decline slowed, he said in a report published on Sunday. This signalled the gap between asking price and selling price was narrowing, he added.

The decline in average housing prices has slowed down to 6 per cent in the second quarter compared to the previous three months, according to the report. Transaction volumes declines by 13 per cent compared to the first quarter and 58 per cent from their level in the second quarter of 2008. The gap between achieved and asked prices narrowed to 7 per cent in the second quarter of 2009, after achieved prices were 20 per cent lower than asking prices since the second quarter of 2008, it said.

The decline rate in rental prices also slowed, Jones Lang LaSalle said.

The average rent for two bedroom apartments fell by 15 per cent in the second quarter, compared with a 22 per cent decline in the first quarter of this year.

Additionally, new residential supply will continue to enter the market as 22,400 units are expected to be handed over this year, despite the cancellation or delay of more than US$24 billion worth of housing projects, it said. — Reuters

Source: Business Times, 18 Aug 2009

(DUBAI) Dubai house prices fell by 24 per cent in the second quarter from the prior quarter but the pace of decline slowed, in line with improving global property markets, Landmark Advisory said on Sunday.

Prices fell less in the same period in Abu Dhabi, as the United Arab Emirates’ (UAE) capital, home to most of the country’s oil, continues to weather the global downturn better than its neighbour.

The average sale price for villas in Dubai fell 24 per cent while apartments declined 17 per cent, Landmark said.

Prices for villas and apartments fell 32 per cent and 23 per cent respectively in the first quarter from the fourth quarter, the firm said in its May report.

Dubai’s once-booming real estate sector has been hit hard by the global financial crisis, but the pick-up in more mature markets such as the United States and Britain is starting to cheer investors.
Prices in the US rose in May for the first time in three years while prices in Britain gained for a third month running in July.

House prices in Dubai are likely to stabilise by the fourth quarter, after falling 9 per cent in the second quarter from the previous quarter, Colliers International said last week.

Rents for villas in Dubai fell 19 per cent to 220,350 dirhams (S$86,480) in the second quarter, while apartment rents dropped 23 per cent to 129,900 dirhams, Landmark said.

Transaction volumes rose 25 per cent and 20 per cent respectively as more people relocated to Dubai from the neighbouring emirates of Abu Dhabi and Sharjah, it said.

In Abu Dhabi, sale prices fell by up to 11 per cent for apartments in the second quarter and 8 per cent for villas compared with the previous quarter, but prices are unlikely to suffer further significant declines, the report said.

The rate of decline also slowed as prices for both categories fell 20 per cent and 30 per cent respectively in the first quarter from the fourth quarter, Landmark said in May.

Rents for both apartments and villas fell by roughly 10 per cent in the second quarter, it said, adding average rents would likely fall significantly as more supply enters the market.

Seven emirates make up the UAE federation.

Landmark Advisory is part of real estate brokerage and consultancy Landmark Properties, which has offices in the UAE and London. — Reuters

Source: Business Times, 11 Aug 2009