Dubai High-End Property Defaults Rise

Source : The Business Times, December 2, 2008

Developers told to review projects not launched or unsold

(DUBAI) Dubai is witnessing an increase in defaults on high-end properties as financing conditions worsen and is likely to see smaller developers merge, a member of the Gulf Arab trade hub's financial crisis committee said on Sunday.

'There are more and more defaults on the high end if banks do not give mortgages and speculators are (many) in the market,' Marwan bin Ghalita, chief executive of the Real Estate Regulatory Authority (Rera), told Reuters in an interview.

Tighter mortgage lending, a liquidity squeeze and a real estate slowdown have hit Dubai, part of the seven-member United Arab Emirates federation, in recent months.

Signs that Dubai's property boom days are over are increasing as developers scale back projects, property prices fall and jobs are cut.

Secondary prices in Dubai and Abu Dhabi fell 4-5 per cent in October from the previous month, with Dubai's advertised villa prices falling by 19 per cent after several banks tightened lending conditions in August and September, HSBC said recently.

Mr Marwan sits on a nine-strong crisis panel set up to tackle the effects of the global financial crisis on Dubai. The council reports to Dubai's ruler.

He said that now would be a good time for smaller developers to join forces, and that he expected some to do so.

'If you look at the market, a merger between smaller companies would give it confidence. I always support . . . good mergers in any sector if it adds value to the sector,' he said.

In October, Dubai developers Deyaar and Union Properties denied that they were in merger talks but were unable to say if the government might order a tie-up.

Mr Marwan said that developers should review projects that had not yet been launched, or where only a few units had been sold.

'This is not a good time to start a new project if you don't have enough liquidity to construct,' he said. 'Slowing down is very important and this is what we at Rera asked the developers to do about a year back. Slow down and review is very important for the market.'

Mohamed Alabbar, a Dubai government official who also chairs the crisis committee, said late last month that the emirate would pull back on its building spree in the light of the financial crisis.

Mr Marwan said that the only market that was truly suffering in Dubai was that for off-plan properties.

'The only market that is not doing well is the off-plan . . . because there are a lot of the speculators on some of the projects. Some of the banks are not dealing with this crisis professionally so they stopped financing,' he said, noting that some developers were also asking for too high a price.

Prices for 'affordable' off-plan properties could pick up in the second quarter or 2009 if banks increase lending, he said.

Mr Marwan said that Rera would enforce a law on the registration of off-plan property sales, after a Muslim holiday next week. Rules for time shares were also being finalised.

'People will be selective in where they put their money. It's not like before where people came to buy anywhere.' - Reuters