Author: Firoz Ali

http://www.arabianbusiness.com/57941…r-dubai-hotels

Property slump ‘biggest challenge’ for Dubai hotels
by Joanne BladdThis email address is being protected from spam bots, you need Javascript enabled to view it on Wednesday, 20 January 2010
The president of Fairmont Hotels & Resorts has branded the collapse of Dubai’s real estate industry the “single biggest challenge” facing the emirate’s hospitality industry.

In the peak of the property boom, the engine of Dubai’s economy, hotels leaned heavily on its custom to fill their rooms and were left with few alternatives when the real estate market slumped, said Thomas Storey.

“I think the single biggest challenge this destination has right now, is that a lot of the business of this destination was driven by real estate…and all of the follow-on business associated with that, you know, all of the designers, all of the architects, all the engineering firms, all the heat, light, gas. When that started dialling back, unfortunately Dubai doesn’t have a lot of other industries to fall back on,” he said.

Related: EXCLUSIVE: Fairmont Palm Jumeirah delayed over funding
Related: Mideast tourism drops 6% but H2 recovery seen
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RevPAR at the Fairmont Dubai, a figure reflecting a hotel’s average daily room rate and occupancy, was down more than 25 percent in 2009, he said.

“I think we’re still feeling it [the real estate crash] and I think Dubai will feel it for a while.

“My concern about Dubai has always been, ‘does it end up not having enough runway?’ In other words, you get to a point where you’ve got to start diversifying that business base in a way that, if you have a shock to one segment, you’ve got other segments to fall back on.”

Last week, it was report that the UAE would see a recovery in tourist numbers this year with arrivals picking up even further in 2011.

In its latest report on the country’s tourism prospects, Business Monitor International said they were upbeat about the sector long-term, despite being hit last year by the effects of the global economic downturn.

It said although it maintained a "rather poor outlook for the UAE in the short term", it saw visitor numbers rebounding this year and next, without giving specific numbers.

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Dubai economy to contract 0.4% in 2010: Report
18 Jan 2010, 2306 hrs IST, PTI

DUBAI: The Dubai economy is forecast to contract in 2010 for the second year in a row, said a research report released here on Monday.

However, the report expects the UAE economy as a whole to emerge from the recession this year with a 2.5 per cent GDP growth.

The ‘UAE Vision 2010’ report by Shuaa Capital, a major city-based investment bank, said the Dubai economy will contract by 0.4 per cent this year but a massive improvement from a five per cent contrast last year.

The projected negative GDP growth is mainly due to declines in residential sale prices and Emirate’s population, which fell by around 60 and nine per cent respectively.

A recovery in oil prices will also see Abu Dhabi emerge from the recession this year and register a GDP growth of 1.4 per cent, compared to a contraction of 2.7 per cent in 2009, said the report.

"The capital will benefit from a recovery in oil prices and increased output this year, as well as strong growth in the non-hydrocarbon sector, which will be supported by government investment and spending," said Shuaa Capital chief economist and head of research Mahdi Mattar, while releasing the report.

"Meanwhile, we anticipate the Dubai’s economy to contract 0.4 per cent in 2010, as the key construction and real estate sector continues to be a drag on growth in the Emirate."

The report says it expects the UAE capital markets to grow by up to 25 per cent this year. A resolution of the Dubai World debt story will be the main catalyst for this growth, believes Mattar.

"In six months, we will have a resolution and [it] will not be a hostile resolution. The main assumption behind this statement is because the Dubai government is doing the negotiation and not Dubai World.

"The Dubai government is taking a broader picture when doing the negotiations and is looking at the effect on the economic growth in Dubai and the effect on the reputation of Dubai with international capital markets and local banks," the chief economist of Shuua added.

In the real estate sector, Shuaa expects Dubai to see another 10 per cent drop in residential prices, mainly due to a drop in demand as a result of the continued decline in the expatriate population.

Shuaa estimates that the Emirate’s population shrank by nine per cent in 2009 and will decline by another 3.6 per cent this year.

An additional 26,650 apartments and villas are expected to enter the Dubai market in 2010, which will put more pressure on the oversupply issues that already exist.

In Abu Dhabi, Shuaa expects the residential shortage to continue, despite the addition of 23,000 extra units expected to enter the market over the next two years.

The capital is also unlikely to see the steep price and population drops experienced in Dubai, the report said.

In the banking sector, customer deposits are expected to rise eight per cent, resulting in an additional net increase in liquidity of 84 billion dirhams.

Lending is not expected to match deposits and will likely to only see six per cent growth.

Banks are expected to see a recovery in earnings of up to 10 per cent.

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http://economictimes.indiatimes.com/…ow/5474415.cms

By Zainab Fattah
Jan. 11 (Bloomberg) — Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice.
Until now.

Barclays Plc won the sheikdom’s first foreclosure cases in court, clearing the way for lenders holding about $16 billion of Dubai home loans to take action when borrowers don’t pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates about 3 percent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Dubai-based Antoine Yacoub a banking analyst at Moody’s Investors Service Inc. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push more cases through.”
The successful foreclosures by London-based Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fueled price increases left the market, according to Deutsche Bank AG. Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process that few understood. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law — setting out rules for default, foreclosure and repossession — is working.
Mortgage Law
The law requires lenders to give homeowners 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. in Dubai. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction. Waugh estimates the process may take two to four months.
Barclays, Britain’s second-largest bank, said in an e- mailed reply to questions that it won the foreclosure orders, without providing details of the cases. The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimize the amount of bad debt on their balance sheets and kept repossessed houses off a market that’s already suffering from too much supply. Provisions for bad loans in the U.A.E. surged 68 percent to 32 billion dirhams ($8.7 billion) as of November, compared with a year earlier.
Abandoned Homes
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they didn’t have the right to foreclose.
Tamweel’s pending cases, filed almost two months ago, involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, Chief Executive Officer Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 percent and 4 percent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization makes it easier for U.A.E. lenders to restructure loans than for their counterparts in the U.S., where mortgage debt was often sold on to investors.
Foreign Banks
U.K.-based Standard Chartered Plc and HSBC Holdings Plc top the list of foreign banks providing mortgages in the U.A.E., according to Deepak Tolani, senior research associate at Al Mal Capital PSC.
“While it is not Standard Chartered’s preferred approach, foreclosure is a legitimate course of action should a borrower not meet their obligations,” the bank said in a statement. HSBC declined to comment on the issue when contacted by Bloomberg, while Islamic mortgage lender Amlak Finance PJSC didn’t respond to e-mailed questions.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, a Dubai-based real estate analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and secondhand properties, Masud said.
‘Slippery Slope’
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
A cultural stigma attached to forcing people out of their homes has also deterred foreclosures. That may not protect speculative investors who helped drive prices up by buying several properties with the aim of selling at a profit soon after.
“The mortgage law has given clarity and certainty to the exact process that must be followed by anyone wishing to enforce a mortgage,” said Waugh, whose firm is currently handling fewer than 10 repossession cases.
Foreigner Population
Dubai’s population, which is about 90 percent expatriate, may drop by 8 percent in 2009 and another 2 percent in 2010, UBS AG estimated in March. Dubai’s immigration department doesn’t provide regular statistics on visas.
Citizens make up only about 20 percent of the overall U.A.E. population, which largely consists of workers from countries including Pakistan, the U.K. and Lebanon. Workers have one month to leave the country after their work visas are canceled.
Dubai first allowed foreigners to own property in 2002. That led real estate prices to quadruple in the following six years, helped by a growing expatriate workforce and speculation fueled by borrowing.
The U.A.E. last year scrapped a rule that automatically qualified homeowners in Dubai for a permanent residency visa. Owners of properties valued at 1 million dirhams or more are now required to renew residency visas every six months.
About 65,000 residential units will be completed in Dubai by 2011 and the emirate needs to create a minimum of 100,000 white-collar jobs to satisfy oncoming supply, Nomura said on Oct 15. Deutshe Bank estimates that 30,000 units may be delivered by the end of 2010.
Faster Process
“When people talk about litigation in the Middle East, they’re concerned over the possible time it would take to obtain a judgment,” Waugh said. “The speed at which it appears judgments may be obtained under the mortgage law is a real, positive sign for banks.” The Barclays cases were filed in November, he said.
The U.A.E.’s central bank in October proposed reducing the time it takes for a loan to be classified as non-performing by half to 90 days. Banks “most probably” will be asked to comply during the first quarter of this year, said Sofia El Boury, a banking analyst at Shuaa Capital PSC.
So far, no properties have been auctioned, according to Mohammed Sultan Thani, assistant director general at the Dubai Land Department. Requests may start pouring in this year as banks give up on other alternatives, he said.
“Amicable solutions are hard to reach when a buyer lost his job,” or when a property is worth less than the amount owed on it, Thani said.
Lending Swelled
Mortgage loans totaled 137.6 billion dirhams in July 2009, central bank data shows. About 25,000 to 30,000 mortgages have been taken in the U.A.E. with more than 95 percent of them in Dubai, analysts say.
The central bank estimates that real estate accounts for about 13 percent of total loans in the U.A.E. Shuaa’s El Boury said the real figure is “much higher” and official numbers aren’t realistic “given the financing contributions to real estate construction and development in the U.A.E.”
The new mortgage law applies to only some kinds of Islamic lending, Waugh said. Shuaa estimates about 25,000 mortgages were extended by Tamweel and its competitor Amlak alone. The two lenders, which control more than half of the U.A.E’s mortgage market, are set to merge this year. Shares of both companies have been suspended since November, 2008.
Negative Equity
The biggest risks to banks come from loans underwritten after 2007, which are “most probably in deep negative equity by now,” Moody’s Yacoub said. Also at risk are Islamic Istisna’ mortgages where a buyer doesn’t make any payments until the property is delivered, he said.
Barclays said the court’s decisions will renew lenders’ faith in Dubai’s legal system, “which could result in bigger lending mandates specifically for mortgage business.”
Judging by the first cases, the process seems to be working, Al Tamimi’s Waugh said. “Like anything, there are a few teething problems that are being resolved, but the fact that we have obtained judgments so quickly is positive.”
To contact the reporter on this story: Zainab Fattah in Dubai on [email protected]
Last Updated: January 10, 2010 15:00 EST

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