February and March are crunch time

Pinsent Masons partner Sachin Kerur

February and March will be crunch months for the industry, a partner in one of Dubai’s foremost construction law firms told Construction Week.

Pinsent Masons partner Sachin Kerur, who consults regularly with industry insiders, said it will be at this time that developers decide whether to go ahead with projects that have been placed on hold, or cancel them.

“Speaking to the industry it seems that the real test will come about in February 2009, and then we will start to know,” he said.

“Like all businesses they (contractors) have to work on a forward order basis. I think by February they will begin to see to what extent developers are pulling projects which up until now have been suspended or slowed down.”

A number of projects in the region, and particularly in Dubai, have been suspended or have slowed down as a result of the fall in real estate demand coupled with the unwillingness of banks to lend money to finance new projects due to the high risk involved.

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But Kerur added that the situation could be appeased by the more responsible lending criteria of the Islamic banking system.

“Because of all the boxes that need to be ticked before you can finance a deal using an Islamic financing structure, you’ll find that people may look to adopt those sorts of structures for safe lending in the future,” he said.

Amir Salam, consultant and until last month managing director of Dubai-based Kaizen Developments, agreed that February could be an important month. “There are a lot of sub-developers that are renegotiating with master-developers,” he said.

“They are trying to consolidate funds towards projects that will give them the biggest turnaround. I don’t know if decisions will necessarily be made in February or March, but it could end up that way.”

Analysts have stated that it may take Western based banks 12-24 months until they are able to finance major construction projects in the Gulf again.

“I don’t see the banks coming back soon to finance new projects,” Rasmala Investments founder and CEO Ali Al Shihabi said.

“I think that it may take a few years, but further down the road the “time out” will turn out to be a very healthy development in retrospect for Dubai, which needed to catch its breath,” he said.

Kerur agreed. “The time frames you hear before banks will start lending again are 12 – 24 months,” he said.

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