Anumber of analysts have indicated that the highly speculative, off-plan luxury segment of the Dubai real estate market would be the first sector hit in a housing price slump. This does not, however, appear to concern the management of the emirate’s self-styled ‘largest private master developer’. “The underlying fundamentals are quite sound, not only in Dubai but across this region,” said Peter Riddoch, CEO of DAMAC Properties. “Dubai’s population is now about 1.8 million, maybe slightly higher. By 2011 it is predicted to reach 4.5 million. Its tourism figures are projected to grow from 6.8 million last year to 15 million in 2015. If you look at all those dynamics, we are still on very solid foundations with a lot of upside potential,” he said. Clearly, DAMAC hopes to capitalize on that upside potential via its portfolio of 670 million square feet of property under development. Yet various pitfalls have beset the developer in recent years, including delayed delivers and one noteworthy cancellation.
In 2003, DAMAC launched a 25-story residential tower known as Palm Springs on the Palm Jebel Ali island development off the coast of Dubai. The property was well received and predominantly purchased by British investors. Construction was very slow to start and five years later, in March of 2008, DAMAC sent a vague letter to Palm Springs property holders saying the project had been cancelled. The stated reason for annulment was that Nakheel, the semi-state owned master developer of the archipelago, had not given DAMAC the land required to complete the project. Angry investors threatened legal action and even stormed a DAMAC property launch in London to warn off potential buyers. Dubai’s newly minted Real Estate Regulatory Authority (RERA) finally stepped in to mediate between DAMAC and Nakheel resulting in a reinstatement of the project shortly after.
Recently, questions have been raised about the Palm Springs incident. It seems that DAMAC’s reason for canceling the project had more to do with lack of funding than a lack of land. In an interview with a prominent Dubai radio program Marwan Bin Galita, the CEO of RERA, asserted that DAMAC cancelled the Palm Springs project because, they “are facing financial problems.” The program went on to explain that the Palm Springs project was planned five years ago and that DAMAC failed to take into account the possibility that the price of steel and other commodities would increase. “They should have calculated the project more wisely,” said Bin Galita. RERA, Nakheel and DAMAC have all been tight-lipped about how the impasse was resolved. When asked about the issue, DAMAC’s Riddoch demurred by saying, “RERA looked at the challenges we were facing and found a way through them.”
Another bump on the road for DAMAC this year was the media speculation that the company would launch an initial public offering (IPO) of its shares. In early September, a Gulf-based business publication reported that the developer’s shares would list on the Dubai Financial Markets, Deutsche Bank would be the lead advisor on the deal and that DAMAC’s recent rebranding likely meant the IPO was near. The company will not confirm or deny the reports. “DAMAC hasn’t made such an announcement at all. Newspapers have speculated on that,” said Riddoch. One Dubai-based banker with IPO experience suggested that the current economic climate makes IPOs difficult. “You must have all your financial documents in perfect order,” he said. “Otherwise it is a no go.” Recently, Dubai-based Emirates Post and Abu Dhabi-based Al Qudra Holding both postponed IPOs citing tough market conditions.
Difficult market conditions are a factor for DAMAC as well, according to Ramesh Efe, vice president of finance at DAMAC. The Gulf Times published an interview with Efe in August asserting that the executive “is concerned about raising finance for future expansion” and quoted Efe as saying, “No doubt about it there are more barriers.” When queried about the interview, DAMAC’s CEO Riddoch said, “That was not an official statement. There is no problem raising capital whatsoever.”
DAMAC is not a publically traded company and does not reveal its financial statements, making it difficult to get a clear picture of what is really happening behind the luxury lifestyle provider façade. As of April 2008, DAMAC had only completed 18% of its then $30 billion real estate portfolio. It will be interesting to see how the master developer completes the remainder of its projects in the prevailing economic headwinds.
