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Cash crisis forces talk with banks over one of the world’s biggest development projects

Dubai master developer Nakheel is to hold talks with banks in a bid to help sub developers obtain funding for its prestigious offshore The World project.

Some developers are facing difficulties making payments and others cannot get loans to begin construction in a sign that the real estate downturn is now pervading all sectors of the property market in Dubai.

Nakheel has spent US$3 billion creating 254 artificial islands off the Dubai coast, of which 175 have been sold. But some of these buyers have now missed instalments and asked for help in funding their investments because of the global financial crisis.

On buying an island, owners would usually place a 15% deposit and then pay a further 15% every six months. The island would be handed over to them once 45% of the total was paid, with the balance due within another 18 months.

The World managing director Hamza Mustafa said a number of subdevelopers have asked for payment extensions and in some cases they were asking to quit as they can no longer afford to develop.

'The problem with today's climate is the non-availability of liquidity. We need the banks to start financing our developers, so we are working closely with them to come up with packages for the developers who we feel are not a credit risk,' explained Mustafa.

This, along with helping sub-developers to ride out the recession, was the project team's main task for the year, he said. Nakheel has also revamped its marketing strategy to help find end-users, buyers who will live and work on the islands.

'In the past they would have had to pay a 1% penalty in interest a month for missing an installment, but now we're being more accommodating. We understand everyone's in a situation. I've also had developers who have asked for consolidation, which means those who bought, let's say, two islands now want to give one up,' added Mustafa.

Nakheel recently held a forum with owners of islands at The World to help guide them through the challenges of a recession. 'Right now the only thing we can do for our developers is help them through the process,' Mustafa added.

About 79 developers are involved in The World and 70 islands are still unsold. Six developers are expected to begin work on their projects this year, meaning construction will start on a total of 25 islands if the financing can be sorted out.