Prettier picture

Dubai’s prospects appear to be improving on a near-weekly basis

Dubai World, COMMENT, Projects, Debt, Financial crisis, Real estate

There has been plenty of (perhaps well-founded) scepticism about the recovery of Dubai’s construction sector from the surviviors of the last crash.

Although the past 18 months have seen plenty of grand project announcements – and more than a fair share of re-announcements – many contractors have grumbled that this hasn’t really converted into shovels in the sand.

All too frequently, the problem for those that stopped work on stalled schemes is cash – developers stopped receiving orders for homes and funding from banks, so they stopped paying contractors and projects ground to a halt.

Until recently, the major concern hanging over the Emirate’s potential growth seemed to be about debt – both of the government itself and of related entities such as Dubai World, or the Dubai Holdings Combined Operations Group (DHCOG) that includes Dubai Properties Group and Tecom.

The bulk of this was secured in the wake of the global financial crisis and was due for renewal over the next 18 months, with analysts worrying that the amount due could cause liquidity issues.

Fortunately, those fears seem to be abating. A report by Citi Research last week tracking projects in the MENA region pointed out that Dubai’s public sector debt, at more than 100% of GDP, remains high, but the recent successful restructuring of loans from Abu Dhabi’s government and bonds from the central bank has smoothed out repayment timetables.

As the strengthening balance sheets of both related entities like Nakheel and quoted real estate firms such as Deyaar have shown, the properties and other investments being held by them are increasing in value all the time, and a Jones Lang LaSalle report last week pointed out that prices in some areas of Dubai are already surpassing 2008 peaks. This gives them a greater opportunity to sell off assets held at prices they may deem to be more palatable than they’d have received in recent years to pay down debts.

The positive news continued last week as Mohammed Al Shaibani, director general of the Dubai Ruler’s Court, said the $4.4bn that Dubai World is due to pay in May 2015 can be met and that it may even make some repayments early.

Talk of debt repayment schedules and maturity dates may make the eyes of most contractors glaze over, but the confidence which the banking sector has in the city’s developers and government-related entities will make a big difference to the city’s future project pipeline.

Already, in the past 12 months we’ve seen a more confident Nakheel use its improving profits both to pay down some of its debts early and to re-start scores of its stalled schemes.

Dubai Properties Group has also restarted The Lagoons project by the Creek and began to kick life back into Dubailand.

Others are following suit, with MAG Group founder Moafaq Al Ghaddah telling CW that it is looking at a “huge” Dubailand project, for which it may need some willing partners.

For now, it may well be the city’s architects, project managers and consulting engineers who are ramping up workforces to draw up new plans for developers (or even re-work old ones), but the knock-on impact that this improving environment will have on the contracting industry will not be too far behind.

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