Nakheel recently received US$9bn (Dh33bn) from the Dubai Government to revive stalled projects and settle debt, and have now announced more options to investors in long-term projects, such as Palm Jebel Ali.

Options

The options outlined by Nakheel are:

• Staying in the project
• Swapping into near-term projects
• Consolidating into other owned properties
• Consolidating into a third-party property
• Receiving credit that will be useable against any property at anytime and redeemable in five years

History

The debate began late 2009 when Nakheel offered buyers of waterfront homes on Palm Jebel Ali alternatives in Jumeirah Heights and Al Furjan. The buyers declined these offers, saying the options were “inadequate and not acceptable”, and said they would hire a law firm to represent them.

Property prices for a villa on Palm Jebel Ali plunged from  $4.35m to $2.45m in just two months when the financial crisis hit the artifical island in second half of 2008. The project was launched in 2003, but came to a halt in 2008 and on April 10 this year investors will meet in London to sketch up a plan how to put pressure on the project.

The National

The cut followed only a week after Dubai World made the same decision, and is a “rationalisation of resources” Deyaar said in a statement. This is the first time Deyaar has reduced its workforce since the hit of the global financial crisis, but Deyaar also says this will maintain their commitments to its customers, which includes reducing the customer defaults.

Last month NCE revealed that the developer was close to bankruptcy, with analysts estimating that it owed consultants up to £200M. Last week the Dubai government bailed it out with cash from a successful bond issue worth £13.3bn (US$20bn), with neighbouring Abu Dhabi buying half the offering. Despite this, NCE understands that consultants will struggle to get paid in full for work done.

“One of the offers on the table is for firms to get 65% of their consultancy fees, with the understanding that in doing so, they waive their legal rights [to further payment], ”

Association for Consultancy and Engineering chief executive Nelson Ogunshakin told NCE.

“We also believe UK firms may be further down the pecking order, and indigenous suppliers are given a preference,” he said, adding that the money owed to global consultants will top £400M.

The ACE has approached business secretary lord Mandelson to step in on behalf of British consultants.

“We want to take action where appropriate, but the UK is one of the biggest players in Dubai, and this relationship must not be damaged,” he said.

He added that Nakheel may not be the only Dubai firm to be in trouble.

“Nakheel’s troubles are visible, but there are other investment vehicles trying to play the same game,” he said.

Nakheel refused to comment on the details of payments to consultants. “We have benefited from an injection of capital from the bond issue. The value and other details relating to this funding remain confidential.”

Nakheel’s problems stem from difficulties in securing pre-construction sales on property space. Its cashflow dried-up when its housing market collapsed in September 2008, leaving no money to pay consultants or contractors.

Consultants had previously warned that allowing Nakheel to collapse would have damaged the reputation of the Emirate.

Numerous consultants had reported cash collection issues in the Emirate, although it is unclear how much is owed to them by Nakheel.

Mouchel reported it was chasing £23M in Dubai, “the vast majority being due from the local state backed development companies”.

Atkins is owed £25M in the whole Middle East market, Scott Wilson between £4M and £6M and WSP an undisclosed sum.

New Civil Engineer

A decision whether to cancel or not would be made by the end of the month, said Marwan bin Ghalita, the head of the Real Estate Regulatory Authority (RERA).

“The decision has not been done. They are projects all over Dubai – third party projects (sub developers),” he said.

Earlier this year, Ghalita said he believed 25 percent of projects will be cancelled in Dubai as a result of the global economic slowdown.

“It’s almost the same,” he said when asked if that figure had changed. The Dubai Land Department and RERA set up a committee last week to cancel projects in the emirate that are not feasible.

Real estate prices tumbled 41 percent in the first three months of the year, property consultants Colliers said in a recent report.

A collapse in property prices has already led to project cancellations in the region worth billions of dollars.

More than half of the construction projects in the United Arab Emirates, worth $582 billion, have been put on hold, Dubai-based market research firm Proleads said in February.

Ghalita said on Monday the committee would cancel projects based on RERA’s decision whether or not they should continue, a request from developers to cancel, or through complaints to the watchdog from project investors.

In February RERA said Dubai developers are likely to delay the delivery of about 20 percent of residential units in 2009 and 40 percent in 2010.

Arabian Business/Reuters

Year-on-year prices fell for the first time with values falling 34% since the first quarter of 2008, Colliers said in its quarterly price index, which collates mortgage transactions on properties open to foreign ownership since the start of 2007.

“Without any support from previous quarters 1Q 2009 clearly represents the impact of the global crisis on the real estate market,” the report said.

The average price of property fell to 1037 U.A.E. dirhams ($282.3) per foot in the first three months of 2009, compared with AED1770 in the fourth quarter of 2008, the report said, and are “currently at Q2 2007 levels”.

Apartments and townhouses have been hardest hit, with prices for each falling 42% and the price of villas falling 40%.

Property prices were rising sharply as recently as the first half of 2008. But in recent months, as the impact of the global crisis draws in on the emirate, real-estate agents have reported softening prices and a lack of buyers, especially property speculators that helped drive steep price increases.

First Symptoms

Prices rose 42% in the first quarter of 2008, 16% in the second quarter and 5% in the third quarter, according to previous Colliers reports.

However, the consultancy said negative sentiment from the global financial crisis, the postponement of developments by large government-backed developers and concerns over job losses has deterred potential property investors in recent months.

“During Q4 2008 the U.A.E. experienced the first real symptoms of the impact of the global financial crisis on the region; however the negative impact averaged over the three month period was softened as it included transactions initiated during late Q3 and being concluded in early Q4,” the report said.

Colliers said although there is some evidence of improved liquidity at the end of the first quarter 2009, it is too early to assess the impact this would have on the housing market in the medium term.

Last week, Swiss Investment bank UBS (UBS.AG) downgraded the U.A.E.’s real estate sector, citing a possible 70% fall in prices and significant oversupply as its main concerns.

“In our view we are still in relatively early stages of the property down cycle in the U.A.E.,” the bank said in a research note. “We believe risk-reward profiles are not yet compelling for investors to consider market reentry hence continued price declines are expected.”

Dow Jones Newswires

“Despite the economic downturn, we are going ahead with the projects that we have already announced,” said Hussain Sajwani, chairman of Damac Holding.

“By the end of this year, we will sign contracts worth Dh2 billion for the construction of ten projects.”

Building costs decline

Lower demand has lead to a decline in building costs and the prices of building materials have declined significantly over the last eight months. A large number of projects have been put on hold or cancelled, which in turn results in many contractors seeking for work. Some are willing to take on work at cost prices to save jobs and avoid bankruptcy.

Lower building costs also results in opportunities for developers, as future profits could be increased while signing contracts now.

Gulfnews

Dubai’s economy could shrink between 2 and 4 percent in real terms this year, S&P said, as a collapse in oil prices and the global financial crisis take their toll on real estate prices and equities.

S&P said it had downgraded Emaar to BBB+ from A- with a negative outlook, taking the developer almost below investment grade, while it also slashed ratings of other companies, including DP World, by one notch each.

Four Dubai-based banks covered by the ratings agency were also placed on ratings watch, with negative implications, partly because S&P was concerned about the banks’ exposure to the emirate’s real estate sector.

Residential real estate prices in Dubai could slump almost 38 percent this year, a Reuters poll showed this week.

“The global economic downturn continues to depress some of Dubai’s key economic sectors, including trade, tourism, and commerce,”

S&P credit analyst Farouk Soussa said in one of three notes issued on Tuesday.

“We expect that as a result of these factors, the economy may contract in 2009.”

Emaar, one of the region’s biggest developers, was downgraded due to its heavy exposure to the weakening Dubai property market, S&P said.

“The weak markets are negatively affecting our view of Emaar’s business risk, and are likely to weaken Emaar’s currently healthy financial position in the near to medium term,”

said S&P credit analyst Alf Stenqvist.

Reuters

“Dubai-based companies will be drawing on it soon,”

Nasser al-Shaikh, head of Dubai’s finance department, told journalists. Shaikh said real estate companies, who are among the hardest hit by the financial crisis, would also have access to funds.

The Programme

The government of Dubai launched a $20bn bailout plan in February, where $10bn were paid for by bond purchases from the central bank of the UAE.

“The funds will be used to assist the companies to refinance current obligations that are coming up this year or next year. It could be a cash injection through the form of extended loans or through the banking system,”

Shaikh said.

According to Steve K. Worrel, Director of Mixed Use Development at Yas Island, availability of more workers and bidders have increased because of the economic downturn. Additionally, the prices on materials have gone down.

Currently, 37.000 workers are stationed at Yas Island, whereas 10.000 joined in the past six months. According to mr Worrel, six months ago it was not so easy to get construction workers immediately. It was also difficult to get more than two bidders for various projects.

Now, the situation has changed and the supply of workers and bidders have increased, and construction costs have decreased. Worrel told the press that the money saved would not be used for any additions to the projects, as the projects have fixed plans. About 60 per cent of construction of the first phase of the projects has been completed, costing about Dh38 to Dh40 billion, said Worrel.

Gulfnews

A study released by the IMF says the UAE has plans to carry out enterprise projects worth a total of $918 billion. This accounts for nearly 42 per cent of all major enterprises to be implemented in the Gulf Cooperation Council (GCC) as part of a strategy to upgrade the infrastructure.

The majority of enterprise projects are focused on real estate and the housing supply bottlenecks to avoid inflation. $607.4bn will be spent on real estate projects, and $137.5bn will be spent on infrastructure, says the IMF.

“The investment profile of GCC countries reflect country-specific diversification strategies, although projects are generally geared toward addressing supply bottlenecks, diversification and employment generation,”

the IMF said.

“With the emergence of inflation as the main short-term macroeconomic challenge, large investments are being channelled to the housing and infrastructure sectors to reduce supply bottlenecks and expand capacity.”

The report put the total GCC medium-term project investments at $2,193bn, including nearly $960bn for real estate, $430bn for infrastructure, $421bn for oil and gas, $175bn for electricity and water, around $142bn for petrochemicals and $65bn for industry.

Emirates Business/IMF