Developers looking at scaling back as Middle East banker warns of finance crisis
|Tuesday, 21 October 2008|
Real estate projects in the Middle East are facing a finance crisis according to a leading bank and developers are admitting they are re-examining business plans for 2009.
'The days of cheap money are gone. Be prepared to pay more. Real estate will suffer and big projects will be re-visited,' said Dubai Islamic Bank group head Khaled Al Kamda.
He is the first leading banker in the region to publicly give such a stark warning. Some projects may be put on the back burner. 'With tightening credit the developer has to revisit the fundamentals, the whole basics. The viability of some projects will need to be re-assessed,' he added.
Al Kamda said property developers in the Gulf could pursue mergers and acquisitions as banks become choosier about which projects they finance during the global credit crisis.
State-owned Nakheel, developer of the palm-shaped islands off Dubai's coast, admitted it is looking at costs. It said it had no need for external financing until 2010 but may scale back its huge land reclamation projects to curb costs and protect profits.
Chief Financial Officer Kar Tung Quek said the developer had sold between 20 billion dirhams ($5.5 billion) and 22 billion worth of property in 2007 and up to 48 billion so far this year.
'When we sell property, payment comes every six months so we've got something like 33 to 35 billion dirhams of cashflow coming in in 2009 from the properties that we have released. So we've got an enormous amount of cash flow,' he said.
He added that the company did not need to resort to its government sponsors for funds and would repay outstanding obligations on its $3.52 billion Islamic bond issue from internal resources.
But adjustments will be made. 'What we can do with the credit crunch is adjust a little by scaling back some of our very long-term land reclamations and adjust our business plans for 2009,' he said.
'I'm quite confident once the banking system sorts itself out, once the plumbing gets unclogged, people will realize that Dubai and the Middle East is the only remaining region that will give you very strong capital growth,' he added.
Saudi developer Al-Oula plans to sell Islamic bonds worth 3 billion riyals ($800 million) within two years to help finance projects both in the kingdom and in the region.
Its subsidiary Al-Oula Investment plans at least another 20,000 units in the kingdom through joint ventures with UAE's Emaar Properties and Egyptian developer Talaat Moustafa Group.
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