Executive sat with Hasni to discuss the repercussions of the Dubai debt crisis on the emirate’s real estate market.
E When Dubai World made the debt standstill announcement, what was the immediate effect on the market?
Concern about Dubai has been there for the last year or so…[but] this came as a surprise to a lot of people due to the big impact on global financial markets: for example, the share prices in the Far East dropped a good percentage. The news became worse than the reality and that created a negative image of the Dubai market. Questions were raised by potential investors and people who dealt in the real estate market or were planning to participate in the Dubai market. They are more cautious now; they want to see how this is going to turn out.
E Will Abu Dhabi’s bailout of Dubai restore confidence in the real estate market?
I’m not sure if the word “bailout” is correct, let’s call it assistance by Abu Dhabi, because the structure of how they are going to deal with it has not yet been revealed. We know Abu Dhabi has committed $10 billion, and Nakheel will use some of the money to pay its sukuk [an Islamic bond], suppliers and creditors. Nakheel is only part of the story, the overall picture still requires a lot of clarification.
E How much does the lack of transparency in the UAE market affect investors’ perception?
Transparency is an issue. I believe that the bodies want to be transparent but the complexity of the matter doesn’t make it easy for them to be forthcoming. More important is the way they managed the issue, they suddenly made the announcement and on the next day made another announcement. That lack of clarification of the process was the issue. Transparency is not an easy word because how transparent [do] you want to be? That is not something that can be easily done. But the clarification of the process is [easy], and allows people to know what’s next. They could have managed it better — debt resolution is not something new. Take for example General Motors’ bankruptcy: they went through a process, and they told people about the process. Not declaring your steps will make people unsure. It is better if they clarify their steps, the market will be able to anticipate much better.
E Are Nakheel property prices likely to be hit further?
Here I would like to differentiate between sector specific and developer specific markets. For the sector specific (residential, hotels, etc.), overall, the demand and supply have been clear, so the there was not much impact: whether Nakheel [stalled payments] or not. But when we talk about developer specific, the problem becomes more serious. When the market adjustment happened some of the projects did not adjust as much as others; some of the big developers’ prices remained steady. They went down, but not much. In some locations, such as Dubai Marina, they dropped, [but] not as far as people say. With regard to Nakheel and their problems, the prices of their properties are, of course, going to have more of a downward impact.
E Will people be scared that funding will not being available in the future?
The Dubai World debt is huge and will constrain the availability [of credit]. Banks will make provisions to adjust for the restructuring and so on, which will also impact their capital or profitability. This will also constrain banks from being able to lend their money to the real estate sector, even if it is unrelated to Nakheel.
E Will the fact that Abu Dhabi is financially stronger than Dubai put its real estate market in a better position?
Abu Dhabi and Dubai are two separate real estate markets. It is all about market demand. The overall demand for real estate in the UAE has been on a downward trend so, regardless of whether Abu Dhabi is stronger financially or not, demand has fallen quite a lot; even Abu Dhabi has scaled down projects it had in the pipeline. Abu Dhabi is making sure the Dubai market doesn’t drop, which will, in turn, support the overall market of the UAE.