<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Touch And Go: Hircon International
will manage to hand over 23 Marina
to occupants by June 2010
The most enduring media image of the fall of the rich emirate of Dubai is the rows upon rows of cars abandoned at the airport by fleeing expatriate employees who had lost their jobs and had no money to settle their dues.
But Dubai, used to pomp and glitter, does not like to admit it is facing a meltdown. How can one explain that Nakheel, one of the emirate’s largest realty developers, spent $20 million in fireworks and pageantry for the opening of its $1.5 billion resort Atlantis in December last; and then sacked 500 employees a few days later because it could not pay their salaries?
Among the worst hit in Dubai’s deceleration that started around October 2008 has been the realty industry. Investors from West Asia, the Far East, the US and India flooded the booming economy which they thought was secure because of the never ending rise of oil prices. A construction boom that kicked off about a decade ago became a frenetic tide by the first quarter of 2008. By the end of the year, about 42 million sq. ft of commercial construction was in the pipeline — more than any other city in the world; and prices had shot up 40-45 per cent in just the first quarter of the year.
Post-Lehman Brothers fall, meltdown began to hurt, and Dubai was in the centre of the mess. Oil prices tanked, and the easy liquidity that financed these real estate projects evaporated. Amlak, the largest home financier in the UAE, announced it was suspending new loans. The first quarter of 2009 saw residential property prices plummet 40 per cent and unfinished skyscrapers dotted the skyline.
By the first quarter of 2009, prices had fallen to 2007 levels. At the Dubai International Financial Center (DIFC) prices crashed to Dirham 2,000-2,300 (Rs 26,680-30,700) per sq. ft from the peak July 2008 levels of Dirham 4,500 (Rs 60,000). The Jumeirah Lake Towers (JLT), a clutch of 77 upscale residential and commercial towers, saw prices fall to Dirham 700 per sq. ft from Dirham 1,700 (Rs 22,600) — a decline of over 60 per cent. In the posh Jumeirah Palms, capital value of property declined to Dirham 800-900 per sq. ft from the peak of Dirham 1,800 per sq. ft.
Dubai realtors also said the promise of a three-year visa along with a property purchase in Dubai, brought in thousands of foreign investors keen on setting up business in the Emirates. However, this proved to be a chimera and developers could not provide the visas, triggering a flight of foreign money.
Dubai-India Synergy Stumbles
In the boom days, the property markets of India and West Asia — Dubai in particular — saw a lot of osmosis. Indians living in Dubai, investors from India and Indians in other markets made a beeline for picking up a piece of the action. Among the Indian developers that attempted to cash in on the investor money flowing in was the Niranjan Hiranandani-promoted Hircon International that launched in true Dubai style a 90-storey tower — the 23 Marina — in 2007. Other Indian developers in the Dubai market included HDIL’s subsidiary Dheeraj East Coast, Seth Developers, the Mumbai-based Mayfair and Evershine groups and Bangalore’s Sobha Developers.
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The investment flow was the other way too. Several Dubai-based developers queued up to invest in India’s property boom. Emaar Properties, Dubai’s leading developer, joined hands with India’s MGF Developments in 2005 to form the joint venture Emaar-MGF Land. The company is a major contractor for the Commonwealth Games construction in Delhi and has launched a slew of residential and hospitality projects.
ETA Star launched its first residential project Jasmine Court in Chennai and claimed it had 5 million sq. ft under development in India. The Nakheel Group announced projects in Bangalore, while another big Dubai player Damac Properties said in 2007 that it planned to invest around $5 billion (Rs 19,700 crore) in India over the next three years.
Source: Colliers International/Bloomberg
Many of these projects have been either withdrawn or have slowed down. Ironically, among the first to suffer the stockmarket slide was Emaar-MGF Land, whose mega IPO in February 2008 expected to net Rs 6,500 crore, had to be withdrawn due to lack of subscriptions. The Nakheel Group’s 50:50 JV with DLF for the development of the Rs 60,000-crore Bidadi Knowledge City has been shelved. Similarly, ETA Star’s Sriperumbudur township development slated for launch in 2008 and four other Tamil Nadu projects projected to together cost nearly Rs 15,000 crore have been put on the backburner. So has its IT Park in Bangalore.
Hiranandani’s 23 Marina in Dubai that has gone up 60 floors so far has been luckier. “I don’t know if we were luckier or smarter, but we completed sales before the slowdown started. We expect to give occupation by June 2010,” Hiranandani says. The luxury residential property was sold in the Dirham 800-1,200-per-sq-ft range (Rs 10,000-15,000 per sq. ft), but prices had thereafter fallen in resales. Hircon’s second project in Dubai, announced in 2007, has however been withdrawn, he added.
Looking To Recover
Among the steps the Dubai government mooted was the merger of two loss-making mortgage lenders, Amlak and Tamweel, with the two government-owned banks to create a new $2.7-billion Emirates Development Bank. However, the merger of the two housing finance groups that once controlled more than half of Dubai’s mortgage market, has run into trouble eroding investor confidence further. The future of the lenders was thrown into doubt last week when the UAE Federal National Council, the government’s advisory body, failed to agree on a law governing Emirates Development Bank.
Administratively, the Dubai government has appointed Mohamed Alabbar, chairman of Emaar Properties, as director general of the Department of Economic Development, and has given more teeth to the Real Estate Regulatory Authority to ensure completion of projects.
A recent Standard Chartered survey said “considering the number and success of recent bond issues both by corporate and sovereigns,” the Dubai market was showing the first signs of revival. However, even after the 40 per cent fall from peak in mid-2008, the bank’s analyst Phillppe Dauba-Pantanacce warned that prices were still too high and would need to come down further. Says Venkateshwaran Ramadoss, senior research analyst of the Kuwait Financial Center: “We cannot foresee a short-supply scenario to cause a remarkable recovery. The increased supply will lead to further contraction in prices and rentals — in the range of 15-25 per cent.”
As more ‘for sale’ signs go up across Dubai expat residential enclaves like Jumeirah, Umm Suquiem and Safa, the heady days of Dubai as a property investment hub are clearly over.
gurbir dot singh at abp dot in
(Businessworld Issue Dated 21-27 July 2009)