Dubai Forums Dubai Discussions Dubai General Chat

http://www.arabianbusiness.com/545231-r ... -suspended

UAE projects suspended or cancelled hit $75bn.

by Martin Morris

UAE CONSTRUCTION: HSBC report claims $75bn worth of projects suspended or cancelled. (Getty Images)A new report claims around $75bn (275bn dirhams) worth of construction projects in the UAE can be identified as having been either suspended or even cancelled.

The bulk of the report - an Arabtec Holding equity research note released by HSBC and reported by Emirates Business - said most were high-end residential and commercial projects.

"Since our company note on January 13, 2009, Arabtec's share price has dropped 44 percent on the back of continued negative news flow across Dubai's construction sector," says the report.

"Following the cancellation of its racecourse project by Meydan, the latest negative news to involve Arabtec is the reported suspension of the $654 million Atrium project in Dubai by Australia's Sunland Group. We surmise that the client may be looking to revisit the project's design costings.

"We estimate that Arabtec was due to start construction circa in second quarter of this year, but that this could now likely be pushed forward to early third quarter of 2009. We continue to exclude this project from Arabtec's backlog until a revised contract value is disclosed, a move which more firmly signals a client's intention to proceed."

The bank is maintaining its 12-month valuation of 2.40 dirhams but has upgraded its rating from 'neutral' to 'overweight'. It also adds that the magnitude of the sell-offs appear unjustified, the newspaper reported.

In the report's view, while macro and property news flow has led the market to take a negative view towards Arabtec, the current valuation is too compelling. "We believe our forecasts reflect the present situation and the magnitude of the sell-off appears unjustified."

"On a 10 percent net margin, this translates into a revenue target that is 3.5 billion dirhams lower than our 2009 estimate of 8.1 billion dirhams," the report says.

The report gives the thumbs-up to management's decision to hold off on share buybacks and cash dividend distributions. It also adds that on a positive note, Arabtec's cash balance should be sufficient to fund continued operations, but that longer-than-expected delays in receivables will leave the company with no option, but to resort to debt financing.

"As we expect its cash burn rate to be aggressive over the coming six months on the back of the less favourable working capital cycle than that enjoyed during good industry times," it said.

"The average receivables days-on- hand for HSBC's global emerging markets construction and engineering coverage is currently 130 days, whereas we expect Arabtec to carry an average 193 days out until 2011,'' it added.

The report says the company will manage to secure debt financing, but only on a project-by-project basis, as opposed to at the corporate level.

Nakheel's KM Tower alone is $38 Bln.

K-Dog wrote:Nakheel's KM Tower alone is $38 Bln.

That price is not for the tower alone.

sage & onion wrote:

K-Dog wrote:Nakheel's KM Tower alone is $38 Bln.

That price is not for the tower alone.

huh?

K-Dog wrote:

sage & onion wrote:

K-Dog wrote:Nakheel's KM Tower alone is $38 Bln.

That price is not for the tower alone.

huh?

It seems that some figures were released or guessed regarding the price of the tower, however the 38bn figure is way exagerated. That would be $69m per floor, think about it?

38bn is based on the entire Tower & Harbour project. The new unofficial Dubai City Center, as its being called.

http://www.nakheelharbour.com/

RobbyG wrote:38bn is based on the entire Tower & Harbour project. The new unofficial Dubai City Center, as its being called.

http://www.nakheelharbour.com/

That sounds more like it, thanks Robby.

But isn't the enitire project being pushed back, hence the $38 B.

K-Dog wrote:But isn't the enitire project being pushed back, hence the $38 B.

Yes indeed the entire Project is being put on hold / postponed / cancelled, depending on what article you read.

on the other hand AD is about to launch a DH 100 Billion projects this year to constructions in the western areas of AD emirate. work never stop.

Arabtec Holding does not reflect on all UAE projectS sage

uaekid wrote:on the other hand AD is about to launch a DH 100 Billion projects this year to constructions in the western areas of AD emirate. work never stop.

Arabtec Holding does not reflect on all UAE projectS sage

I totaly agree with you, Arabtec is just one of many. The Western areas of A/D are directly related to Oilfields if I am not mistaken.

yes... most of those projects are related to the friendly energy production in AD from MASDAR energy

http://www.masdaruae.com/en/home/index.aspx

uaekid wrote:yes... most of those projects are related to the friendly energy production in AD from MASDAR energy

http://www.masdaruae.com/en/home/index.aspx

If this indeed goes ahead it will be an incredible project.

http://www.worldfutureenergysummit.com/ ... m/link=378

well it is a bout time I think

uaekid wrote:http://www.worldfutureenergysummit.com/page.cfm/link=378

well it is a bout time I think

Yes indeed, lets see how far it gets implented though

Much higher than $75 B.



Some $263 billion worth of projects in the UAE have been delayed or cancelled, Morgan Stanley said, citing data of Middle East business information website Zawya.

Emaar Properties is likely to be the "worst affected" among Dubai developers by the change in selling prices, Morgan Stanley said.

"We believe that Emaar runs a high risk of sales returns and defaults among its recent launches," it said. "The company's high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak."

K-Dog wrote:Much higher than $75 B.



Some $263 billion worth of projects in the UAE have been delayed or cancelled, Morgan Stanley said, citing data of Middle East business information website Zawya.

Emaar Properties is likely to be the "worst affected" among Dubai developers by the change in selling prices, Morgan Stanley said.

"We believe that Emaar runs a high risk of sales returns and defaults among its recent launches," it said. "The company's high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak."

But surely in that area, everything was sold off-plan, so the major problems would be with the banks rather than Emaar?

But Emaar is the one with their stock down the drain (around 47 cents last I checked). Their US subsidiary, John Laing, is just about to declare bankruptcy.

K-Dog wrote:But Emaar is the one with their stock down the drain (around 47 cents last I checked). Their US subsidiary, John Laing, is just about to declare bankruptcy.

bankruptcy ? how ? he told you everything is sold, they got the cash ..hellllooooooo

uaekid wrote:

K-Dog wrote:But Emaar is the one with their stock down the drain (around 47 cents last I checked). Their US subsidiary, John Laing, is just about to declare bankruptcy.

bankruptcy ? how ? he told you everything is sold, they got the cash ..hellllooooooo

The cash went to the management's Bentley Fund.

sage & onion wrote:

K-Dog wrote:Much higher than $75 B.



Some $263 billion worth of projects in the UAE have been delayed or cancelled, Morgan Stanley said, citing data of Middle East business information website Zawya.

Emaar Properties is likely to be the "worst affected" among Dubai developers by the change in selling prices, Morgan Stanley said.

"We believe that Emaar runs a high risk of sales returns and defaults among its recent launches," it said. "The company's high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak."

But surely in that area, everything was sold off-plan, so the major problems would be with the banks rather than Emaar?

They may well have been sold off plan Sage, but they are not fully "paid for" off plan.

It is this group of investors/purchasers that is going to seriously rock the boat especially in Dubai. People bought off plan on the premise of :

a/ their asset would increase

and

b/ they could borrow the finance to complete.

In the coming year if they are to complete, they now find themselves with a property worth less than the original asking price and they cant get the finance.

Take Marina Mall for instance, 3.1 million to complete on a 800sq ft 1 bed appt.

It will complete this year and those appartments will struggle to achieve 2 million on the open market.

Those off plan investors, if they have paid less than a million dhs to date, may as well walk away from their off plan purchase. Basically that leaves Emaar in the shit.

arniegang wrote:

sage & onion wrote:

K-Dog wrote:Much higher than $75 B.



Some $263 billion worth of projects in the UAE have been delayed or cancelled, Morgan Stanley said, citing data of Middle East business information website Zawya.

Emaar Properties is likely to be the "worst affected" among Dubai developers by the change in selling prices, Morgan Stanley said.

"We believe that Emaar runs a high risk of sales returns and defaults among its recent launches," it said. "The company's high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak."

But surely in that area, everything was sold off-plan, so the major problems would be with the banks rather than Emaar?

They may have been sold off plan Sage, but they are fully paid for off plan.

It is this group of investors/purchasers that is going to seriously rock the boat especially in Dubai. People bought off plan on the premise of :

a/ their asset would increase

and

b/ they could borrow the finance to complete.

In the coming year if they are to complete, they now find themselves with a property worth less than the original asking price and they cant get the finance.

Take Marina Mall for instance, 3.1 million to complete on a 800sq ft 1 bed appt.

It will complete this year and those appartments will struggle to achieve 2 million on the open market.

Those off plan investors, if they have paid less than a million dhs to date, may as well walk away from their off plan purchase. Basically that leaves Emaar in the shit.

Not so if they have arranged a mortgage, that leaves the banks in trouble.

If they have arranged a mortgage mate with a Bank in Dubai or anywhere else for that matter, the Banks will pull the clauses out of their bottoms drawer.

Hidden clause No 1

The bank reserves the right to call in or seek redemption of the outstanding amount at any time within the agreed term.

An offer of a mortgage does not contractually oblige any bank to actually offer the mortgage Sage.

arniegang wrote:If they have arranged a mortgage mate with a Bank in Dubai or anywhere else for that matter, the Banks will pull the clauses out of their bottoms drawer.

Hidden clause No 1

The bank reserves the right to call in or seek redemption of the outstanding amount at any time within the agreed term.

An offer of a mortgage does not contractually oblige any bank to actually offer the mortgage Sage.

What I am getting at is, if the bank has given the mortgage / loan to the purchaser, then surely they will have paid the money to the seller.

arniegang wrote:If they have arranged a mortgage mate with a Bank in Dubai or anywhere else for that matter, the Banks will pull the clauses out of their bottoms drawer.

Hidden clause No 1

The bank reserves the right to call in or seek redemption of the outstanding amount at any time within the agreed term.

An offer of a mortgage does not contractually oblige any bank to actually offer the mortgage Sage.

Don't you just love finance...

This simply leads to a few 'options' left:
a. Developer goes bust
b. Bank goes bust

Either way, the customer suffers. Project incompletion is like throwing away money down the drain. Bankruptcy calls for immediate margin calls and again, the client goes bust.

The only way to keep the system alive in Dubai. Is to use 'bailouts' from AbuDhabi as Dubai is up to its neck into loans already.

I think 2009 will result in a lot of bankruptcy filings and 2010 won't be better either if you aks me.

If bought off plan Sage, then no mortgage lender will release all of the agreed amount until the project is signed off.

The banks then reserve the right to make a valuation of the property for mortgage purposes to release the balance of the funds.

If that valuation does not concur with the original asking price then the bank will not release the funds and insist the purchaser find other means of finance by way of a 2nd mortgage.

They wont be able to secure further borrowing because 90% of the banks have adjusted their terms in respect to LTR (loan to value).

Its a time bomb waiting to happen mate.

arniegang wrote:If bought off plan Sage, then no mortgage lender will release all of the agreed amount until the project is signed off.

The banks then reserve the right to make a valuation of the property for mortgage purposes to release the balance of the funds.

If that valuation does not concur with the original asking price then the bank will not release the funds and insist the purchaser find other means of finance by way of a 2nd mortgage.

They wont be able to secure further borrowing because 90% of the banks have adjusted their terms in respect to LTR (loan to value).

Its a time bomb waiting to happen mate.

In this case is the money not paid into an Escrow Account?, forgive me for not understanding the process, it just doesn't seem correct the way that your explaining it.

sage & onion wrote:

arniegang wrote:If bought off plan Sage, then no mortgage lender will release all of the agreed amount until the project is signed off.

The banks then reserve the right to make a valuation of the property for mortgage purposes to release the balance of the funds.

If that valuation does not concur with the original asking price then the bank will not release the funds and insist the purchaser find other means of finance by way of a 2nd mortgage.

They wont be able to secure further borrowing because 90% of the banks have adjusted their terms in respect to LTR (loan to value).

Its a time bomb waiting to happen mate.

In this case is the money not paid into an Escrow Account?, forgive me for not understanding the process, it just doesn't seem correct the way that your explaining it.

Current rules denote that the developer can only ask a certain amount upfront. Only after this money has been spend on actual development progress, the developer is able to request more money from the off-plan investor and his client bank.
The bank monitors this development progress in order not to be at risk for losing the approved amount of mortgage to the client.

The money that used to be paid to a developer (old regulations), went in an escrow account, as I believe it was. Unfortunately, in market circumstances same like this, they spended the money on other things, than your development project. So that method was forbidden by the rulers and authority organizations.

RobbyG wrote:

sage & onion wrote:

arniegang wrote:If bought off plan Sage, then no mortgage lender will release all of the agreed amount until the project is signed off.

The banks then reserve the right to make a valuation of the property for mortgage purposes to release the balance of the funds.

If that valuation does not concur with the original asking price then the bank will not release the funds and insist the purchaser find other means of finance by way of a 2nd mortgage.

They wont be able to secure further borrowing because 90% of the banks have adjusted their terms in respect to LTR (loan to value).

Its a time bomb waiting to happen mate.

In this case is the money not paid into an Escrow Account?, forgive me for not understanding the process, it just doesn't seem correct the way that your explaining it.

Current rules denote that the developer can only ask a certain amount upfront. Only after this money has been spend on actual development progress, the developer is able to request more money from the off-plan investor and his client bank.
The bank monitors this development progress in order not to be at risk for losing the approved amount of mortgage to the client.

The money that used to be paid to a developer (old regulations), went in an escrow account, as I believe it was. Unfortunately, in market circumstances same like this, they spended the money on other things, than your development project. So that method was forbidden by the rulers and authority organizations.

So if I arrange a purchase as follows.

I enter into an agreement with a developer, off plan

I arrange a mortgage from a Bank.

I start paying the mortgage.

The Development does not go ahead.

Do I still have to pay all of the outstanding amount to the Bank?

yup, both emaar and nakheel have halted most, if not all projects. i am surprised the atlantis slipped through the cracks somehow. they barely made it. the issue is that all this is just the start. the UAE has lagged the USA a good 8-12 months - so the worst is yet to come. it will be interesting to see how real estate developments pan out and how many jobs are affected at the end of the day.

Sunil
Edited Mod