Friday, October 26, 2012

Dubai’s property market weakness shows in giant Taj Mahal

DUBAI proclaimed its real estate comeback in the only style it knows: grandiose.
A replica of the Taj Mahal about four times bigger than the original, a skyscraper with nine swimming pools and a mile-long canal winding its way around office buildings are among the high-profile projects unveiled in the past few weeks.
The plans had been on hold since the financial crisis brought the emirate’s property boom to a halt in 2008.
The eye-catching developments may be creating a buzz. In reality, few areas of Dubai are showing signs of recovering from a slump that caused property values across the emirate to fall by as much as 65 percent.
About a quarter of Dubai’s residential properties are empty and an additional 25,000 are due to be completed next year as developers fulfill contracts awarded before the crash, Jones Lang LaSalle Inc. estimates.
“The market has improved to some extent, but there isn’t enough to justify going ahead with all the projects that are now being talked about,” said Craig Plumb, head of research for the Middle East at the Chicago-based property broker. “They should be phased over a longer period and should be built in line with demand.”
About a third of the office space in Dubai’s central business district is unoccupied and the vacancy rate is much higher in other neighborhoods, Jones Lang said. About 900,000 square meters will be added in 2013, according to the firm. That’s about 13 percent of the existing space.
Mega projects
Some of the developments announced earlier this month at Cityscape Global, Dubai’s biggest annual property conference, were reminiscent of pre-crash projects like Burj Khalifa, the world’s tallest tower, and an indoor ski slope at the Mall of the Emirates.
Meydan City Corp., the company that built Dubai’s 60,000-seat horseracing stadium and hotel complex, said at Cityscape that it will revive a plan to create a development featuring lagoons, canals and parks as well as a skyscraper with pools and “sky gardens.”
The government also approved the construction of a canal that would connect the Business Bay area to the sea.
The Taj Arabia complex, based on India’s 17th-century Taj Mahal mausoleum, will be built by Link Global Ltd. for about 1.3 billion dirhams ($350 million), the Dubai-based company said at the three-day trade fair. Chairman Arun Mehra declined to say how Link Global would finance the construction of the Taj Arabia, which will include a 300-room luxury hotel.
Abandoned plans
As those projects get a new lease of life, many more sit abandoned in the desert or in the Persian Gulf.
Taj Arabia was designed to be part of the Falconcity of Wonders, a 41 million-square-foot complex of homes, offices, hotels and stores along the Emirates Ring Road that links Dubai to the United Arab Emirates’ six other sheikdoms.
That project, featuring attractions including replicas of the Pyramids, the Great Wall of China, the Eiffel tower and the leaning tower of Pisa, was derailed by the collapse of the real-estate market.
Salem Al Moosa, chairman of the Falconcity project, said underground work including electricity, water and sewage infrastructure has been completed and the company has sold parts of the site to developers that will realize the company’s plans.
Of the three palm-shaped artificial islands planned by Nakheel PJSC, only one—the Palm Jumeirah—has been developed, with a combination of hotels and residences. The World, a chain of islands off Dubai’s coast that look like a world map, was created by Nakheel in 2008, though the archipelago has yet to be developed. No one at the company was available to comment on the project.
Dubailand project
In all, about $757 billion of projects were delayed or aborted in the UAE since the collapse of Lehman Brothers International Inc. in 2008 sparked the global financial crisis, Citigroup said in a report October 16. That’s more than the projects that were canceled in Egypt, Iraq, Kuwait, Saudi Arabia and Qatar combined, Citigroup said.
Dubailand, an entertainment complex designed to be three times the size of Manhattan, is another project that was put on hold. Dubai Properties Group didn’t respond to questions seeking comment on the project.
Dubai’s real-estate market is showing some signs of recovery after almost four years of falling prices. The number of property transactions jumped by 50 percent in the first half of 2012 compared with a year earlier, data from Dubai’s Land Department show. The purchases, valued at 12 billion dirhams, are still 74 percent less than the 46.5 billion dirhams of sales in the first half of 2008. The Land Department doesn’t break down its data into different types of real-estate.
Gyms, pools
So far, most of the growth has been along Sheikh Zayed Road, the longest in the UAE, where facilities such as gyms, pools and landscaped areas have been completed. The biggest beneficiary has been Emaar Properties PJSC, whose developments include the downtown area around its Burj Khalifa tower, the world’s tallest building, and collections of prime single-family homes known as villa communities such as Arabian Ranches.
Emirates Hills, another villa development, as well as Downtown and Dubai Marina accounted for most of this year’s property deals, data provided by Dubai’s Land Department show.
The improving demand “isn’t sustainable without steady population growth and job creation in addition to a financing pick-up,” said Saud Masud, chief executive officer of SM Advisory Group Llc., a New York-based investment firm. “The oversupply issue will probably not be resolved for perhaps another decade, but pockets of price stability may remain.”
Many buyers are looking for a haven from the political turmoil that toppled leaders in Tunisia, Egypt and Yemen, Jan Pawel Hasman, a Cairo-based analyst at EFG-Hermes Holding SAE, said by phone on October 8.
“Most of the demand is coming from Asia and India, where worries about the European crisis didn’t leave investors many alternatives,” Hasman said. “The question is: how sustainable is it?”
Prices of residential properties in the best locations, such as the downtown area and the marina, have risen about 15 percent this year. Villas, which account for about 20 percent of the homes on the market, are in higher demand than other type of residences, said Amer Khan, a fund manager at the asset-management division of Shuaa Capital PSC.
“This demand is very different from what we saw four years ago,” Khan said. “This time it’s a lot more selective.”
Emaar, which sold more than 500 serviced apartments in a tower near Burj Khalifa last month, required buyers to pay 20 percent of the value before taking legal ownership.
Debt burden
Dubai’s default risk has dropped over the past three years as debt restructuring, bond repayments and rising corporate profits boost confidence in its economic rebound. Still, the emirate is weighed down by the $113 billion of debt it racked up transforming itself into a tourism and commercial hub.
About $15 billion of the debt matures this year, the International Monetary Fund estimated in June. Abu Dhabi’s government and two of its banks as well as the UAE’s central bank provided $20 billion to Dubai in 2009 to help state-owned companies restructure debt.
Dubai’s property market had one of the world’s biggest reversals following the global credit crisis in 2008. Nakheel wrote down the value of its real estate by $21 billion from late 2008 through mid-2010 and received an $8.6-billion bailout from Dubai’s government, helping the company to avoid default after cutting jobs and halted projects.
As emerging-market economies from China to Brazil slow, the property market faces a risk from the third major brake on expansion in five years.
“While a global recovery may add liquidity and in theory support prices, there is still a significant risk in the region, which may negatively impact direct investment,” Masud said.

In Photo: Link Global Group said it will build the Taj Arabia complex that includes a 300 room hotel in a replica of the 17th century Indian palace that’s four times as big as the original. (Falcnocity of wonders via Bloomberg)

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