Cure for crisis of confidence

source The National

Most observers would agree that Dubai is experiencing an economic crisis of unprecedented proportions. Commentary on the crisis focuses on the inter-related issues of housing, inflation, property and debt. It has been officially disclosed that Dubai’s public sector debt is approximately $80 billion. In the absence of more detailed and more current data, the investor’s apprehension is inevitably compounded by uncertainty. In any case, real estate seems to be at the heart of the crisis. Yet in principle, a well-diversified economy such as Dubai’s, with autonomous “locomotive” sectors such as external trade, manufacturing, tourism and transport, should not be so vulnerable to a correction in the property market, especially one that was long anticipated.
In essence, this seems to be a crisis of confidence. And if so, the solution is to rebuild confidence in Dubai. What should Dubai do? May I suggest a key word: transparency. Firstly, Dubai should now document, fully and frankly, the state of its economy. Let us see the economic data -– quarterly, monthly and weekly. Let us see, without fear or favour, all the facts that consumers and investors expect in a modern economy.
Secondly, Dubai should credibly present its economic situation to the world, through voices in which all parties, domestic and international, may place their trust. If the strengths outweigh the weaknesses (as surely they do), there is nothing to be lost.
Thirdly, Dubai should develop and implement an action plan to ensure that confidence in Dubai is never again in doubt.
Dr Robert A Edwards, Edwards Economic Research, Dubai

Someone else’s crisis – but still our problem

source The National

If you are in the market for a mortgage, things are not looking that good these days. Banks are already tightening their terms of lending: much higher down payments are now expected, greater scrutiny is taken of financial records, and interest rates as high as 9.5 per cent imposed. The country’s largest home lender, Amlak, has even announced a freeze on new home loan applications and there are fears that other lenders could soon be following its example.

This contraction of domestic credit is a direct consequence of the global financial crisis. With liquidity restricted on the international monetary markets, financial institutions everywhere find it increasingly difficult to balance their books, let alone finance even the most common economic transactions. So they become risk averse where they were once risk taking, perhaps too much so.

Here in the UAE, capital flight in recent months has adversely impacted the banks’ ability to provide loans. When deposits dropped as a consequence of the panic that shook the international markets, the Central Bank wisely intervened by injecting capital into banks to help them maintain a healthy loan-to-deposit ratio. But even this has not been sufficient to restore the banks’ full lending power.

The real estate sector has been particularly badly hit by the rush to convert assets into liquidity. This has driven prices down at landmark development projects in Dubai and elsewhere in the country. Ominously, prices at Dubai’s Palm Jumeirah have declined by 40 per cent since September. Elsewhere, too, the secondary market is suffering.

With such a troubled picture, it is no wonder that loans are harder to come by. Mortgage lenders and banks are increasingly concerned about their portfolios, fearing that their existing clients could default on their loans if the value of their properties continues to drop to the point where they are worth less than the money owed. With the spectre of negative equity hanging over everyone’s heads, it is little wonder that the lenders have little appetite to offer more mortgages while they struggle to get access to funding on international markets and reduce their own exposure.

The fear is that a vicious cycle will emerge, whereby falling prices deter lenders from lending, which, with an ever-shrinking base of buyers, drives real estate prices further down. And this crisis is penalising not just the speculator who bought and flipped properties for quick gains, and now has to minimise his losses, but more worryingly the average home buyer who needs a place for his family, but whose salary – no matter how generous – and financial record no longer suffice to secure a multi-year loan.

The economy of our nation can resist a momentary real estate downturn and wait for better days. The fundamentals of UAE growth remain strong, and the Central Bank has enough liquidity to keep banks in business. But the issue is elsewhere. The UAE must be able to assure its residents, both nationals and expatriates, that access to basic consumer goods and housing will not be made difficult for people in good standing.

Already measures by the Central Bank and other authorities have been taken. Cash has been injected into local banks and will hopefully trickle down to home buyers. There are discussions about new financial vehicles to support struggling lenders. The next essential task is to communicate to the larger public that their living needs are being seriously attended to.

Dubai property giant Emaar says reviewing jobs

original source Reuters

Dubai's Emaar Properties , the developer behind the world's tallest tower, said on Thursday it was reviewing its jobs policy in light of the global financial crisis after other developers shed jobs.
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'It is now crucial that we use efficiency and maximise productivity, which includes revisiting our recruitment policies and optimising human resources,' Emaar said in a statement responding to a Reuters question on potential job cuts.

Emaar, the Gulf Arab region's largest property developer by market value, said it would it would look to reorient its growth strategies to 'tackle new realities.'

The company did not give further details on the extent of the job review or specify if any jobs would be cut.

Emaar shares, down nearly 80 percent this year, were down 5.04 percent to 3.19 dirhams a share at 0902 GMT.

'This will help the company ... as it will save on overhead costs,' said Hamood Abdulla al-Yasi, general manager at Emirates International Securities. 'That is their intention and they are not the first ... They are adapting to the bad situation.'
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Emaar is 32 percent owned by the Dubai government.

The United Arab Emirates faces a slowdown in loan growth and real estate activity as it grapples with the fallout from the global financial crisis.

Emaar's possible cuts come after Damac Holding, Dubai's largest property developer, said on Tuesday it would axe 200 jobs due to the worsening global outlook and expectations the emirate's thriving real estate sector may have hit its peak.

Omniyat Properties, another Dubai-based developer, will also make redundancies as it rethinks the timing of new project launches, The National reported earlier on Thursday. Citing sources close to the firm, it said Omniyat would cut 60 jobs.

NO CUTS IN ABU DHABI

Abu Dhabi's top two developers by market value Aldar Properties and Sorouh Real Estate, both said they planned no cuts due to a healthy pipeline of projects.

'No way, not a single job cut,' Ousama Ghanoum, spokesman at Aldar, told Reuters. 'The company has lots of commitments and projects to develop with tight deadlines,' he said adding the firm behind Formula 1's newest track was still looking to hire.

Gurjit Singh, chief property development officer at Sorouh echoed those sentiments, saying there was 'no slowing down and no job cuts.'

Lloyds TSB (nyse: LYG - news - people ) Middle East said in a statement on Monday that it had stopped granting mortgages for apartments in the UAE and would require a 50 percent down payment for villas due to 'exceptional market conditions'.

Emaar Dubai Chief Executive Issam Galadari told Reuters last Friday it was giving customers more time to repay mortgages.

Galadari said liquidity constraints at local banks had exacerbated the problems of securing home finance.

Mohamed Alabbar, Emaar's chairman, said earlier this week that growth in the emirate's real estate sector could slow to 9 percent from 13 percent due to the global downturn and that the Gulf's commercial hub had set up a committee to boost confidence in the real estate market.

Emaar, which according to its website has developments beyond Dubai in excess of $65 billion, operates in the Middle East, North Africa, Pakistan, India and the United States.

Global crisis 'will sort men from boys' in Dubai real estate

original source Reuters

The global financial crisis will "separate the men from the boys" in Dubai's booming real estate sector as tighter credit conditions delay mega projects and send speculators fleeing for the exits.

Signs that the crunch has hit the oil-rich city, with its palm-tree shaped islands and glittering skyscrapers, are everywhere, from an Islamic lender's warning that the days of easy money are over to scaled back land reclamation projects.

"Let's face it, every Tom, Dick and Harry became a developer. Now is the time when you differentiate the men from the boys," said Mohammed Ali al-Hashimi, executive chairman of Zabeel Investments at the Reuters Middle East Investment Summit.
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"At times like these, it doesn't matter if you're in real estate or whatever sector, it becomes Darwinian. The strong will survive, weak ones will fall. The good developers will become better."

And there will be fewer of them. Market commentators have cited speculation in recent weeks that two real estate firms - Deyaar and Union Properties - will link up.

Both firms have denied merger talks but were unable to say if the government was looking into ordering a tie-up amid tightening liquidity.

Meanwhile, projects are slowing as funding becomes harder to find and property prices begin to decline in a market that has boomed since 2002 when it was opened foreign investors.

State-owned Nakheel, developer of the palm islands off Dubai's coast, said recently it was slowing down on dredging work on its Palm Deira project, and other developers are likely to follow suit on large-scale projects.

The fall in global property prices is seeping into Dubai, which have fallen for the first time on the secondary market as speculators struggle to meet instalment plans, while buyers are disappearing for lack of financing.

"The fact that prices are coming down elsewhere means that the relative pricing and the relative attractiveness of investing in Dubai and a few other places in the region has been eroded," said Ramin Takin, managing director of Essdar Capital, a Dubai-based financial advisory firm, whose clients include regional sovereign wealth funds.

"I think there may be a slight decline or growth stopping...but the particulars of that will depend on how the various investors, developers and government handle the supply-demand equation for the real estate."

Dubai house price growth slowed down to 16 percent in the second quarter, compared with 42 percent in the first quarter, real estate consultancy Colliers International said last month, and expects the market to slow over the next two years.

Even before the global financial woes began making the headlines, Morgan Stanley said in August that property prices would likely fall 10 percent by 2010 as supply of real estate units outpaces demand.

"If it goes through a gradual or soft landing, it is not a bad thing for the UAE, it is not a bad thing for the long term and for the economy," Mohammed Ali Yasin, head of Shuaa Securities brokerage, part of Shuaa Capital group, told the summit.