Archive for the ‘Real estate’ Category

Construction sector in Saudi Arabia this year:

• During the first eight months of 2011, domestic cement sales jumped by 28.6% compared to the corresponding period of 2010.

• Private sector imports of building materials financed through commercial banks (LCs settled and New LCs opened) increased y-o-y in August by 1.7% and 17.5%, respectively following annual increases of 39% and 15% in July. The growth in the new LCs opened indicates that imports of construction materials will continue its growth over the following months.

• The latest data published by Saudi Ports showed that discharges from construction materials increased 7.8% during the first seven months of 2011 compared with the same period in 2010.

Data from GulfBase.com

An April web exclusive published by Vanity Fair (written by A.A. Gill), “Dubai on Empty,” depicts the emirate in a highly unfavorable light. To invoke the nasty vigor of Gill, it is highly distasteful and reeks as if there’s some unspoken vengeance. Bemoaning a “cautionary tale” of all encompassing greed in Dubai, Gill argues a doomed future for Dubai is a fait accompli. TradeFlow21 does not disagree that there are serious issues to be dealt with, but we urge readers to not be taken in by the bleeding headline and gushing story. As Gill says, “Dubai has been built very fast.” And that’s part of the problem. Too much has happened too fast. Similar to our experiences in China, TradeFlow21 recognizes what many in the Western world have long forgotten, that economic growth, especially the kind we’re witnessing in select economies, is a bumpy ride. Gill claims, “Dubai suffers from gigantism—a national inferiority complex that has to make everything bigger and biggest. This includes their financial crisis.” Are the Western bankers and executives not culpable for some of this hedonism and grandeur? Rather than slam an entire emirate (state), TradeFlow21 seeks to work in practical ways to bridge businesses, students, travelers, and all parties that can help make the world a better place now and for posterity.

1) Actual (Strategic) Value of “Distressed” Real Estate: Dubai World, the government-affiliated parent company under scrutiny, is strapped with an estimated $24B in debt,including $7.3B in deteriorating real estate assets held by their Nakheel subsidiary. On paper, these assets are distressed. In brick-and-mortar reality, they include new-to-market commercial and residential units that help define the Dubai skyline. Vacancy rates are transitory, but quality real estate will return value if strategically positioned as part of a larger initiative or economic plan. A shift, for example, in the commercial focus from financial services and tourism to energy, such as the creation of a solar-powered city, could restart investment and development.

2) Primacy of DP World: Dubai World’s marine and port subsidiary, DP World, maintains deep-water terminals in over 30 countries from the Americas to Asia. It is simply too valuable a commodity (commercially and politically) for the government to abandon to creditors in courts. DP World’s port presence across the globe is central to the UAE’s identity and prestige.

3) Capitalism 2.0: The Dubai crisis was an inevitable and necessary step in the maturation process of an emerging free-market economy. Sheik Mohammed bin Rashid Al Maktoum’s undisciplined approach to development, coupled with investors who naively assumed their bets were covered by state revenues derived from oil, created conditions that plunged the Emirate $80B in debt. Despite the poor timing of Dubai  World’s announcement of a standstill just prior to the Muslim holiday of Eid al-Adha, Dubai and its flagship company should emerge from the crisis with a new sense of purpose and propriety. Abu Dhabi will likely take the lead in helping Dubai restructure its financial institutions and reshape its strategic thinking as part of a wider effort to regain a measure of market integrity and public trust.

4) Human Capital: Dubai’s “oil reserves” are its people. They are educated (77.9% literacy rate), able, and multi-lingual with commands of Arabic, Persian, English, Hindi, and Urdu. The  serious, sophisticated investor recognizes this as a key attribute in any successful venture. Human capital is the critical “X factor” on a balance sheet.

The Emirate of Dubai will receive a $10bn loan from the UAE central bank as part of its debt restructuring program the Financial Times reported Sunday. The Dubai real estate sector, which has been a primary driver of regional development over the past half decade, has seen prices fall by at least 25 percent between the third and fourth quarters of last year. The loan, part of a wider $20bn bond restructuring program, is expected to restore a measure of confidence in the Emirate as it seeks to create a more diversified services-based economy. For now, the cranes over Dubai are largely idle, though some may argue their silence should be viewed as a welcome pause in development, and not a calamity.

A $60 floor for oil prices seems reasonable at this point and is still profitable for the Gulf, although not quite like it was, when nearing $150/bbl. Abu Dhabi’s budget is reportedly based on $40-$50/bbl prices, while Saudi’s is said to be in the range of $55-$60/bbl. Meanwhile, Ahmed Al Mazrouie, Chairman of the UAE Contractors’ Association sees a silver lining: “Construction work in Europe and the United States will be cut back considerably as a result of the crisis and this will result in large supplies of raw materials on the market and a drop in prices. Gulf countries will benefit most from this.” See the images and clips below from Emirates Business 24/7.

clipped from www.business24-7.ae Abu Dhabi ‘will not be affected by oil price slide’  “The Abu Dhabi boom began when oil prices were still relatively low. And the really high prices, ranging around $140 per barrel, were based on speculation. The government knows prices go up and down and based their development plan on lower prices. Thanks to this strategy Abu Dhabi is very stable,” it quoted Abdulla Al Hamed, Chief Executive of Capital Group, as saying.”Indeed, officials used an estimated price of $45-$50 a barrel in the 2008 budget. This means that, with a current account surplus amounting to 25 per cent of the gross domestic product, Abu Dhabi has ample room for manoeuvre and sufficient liquidity reserves to balance its national budget.” clipped from www.business24-7.ae Realty projects will not be scaled down   The demand for housing units is growing in most of the emirates in the UAE. (IMAD ALAEDDIN)

In a Financial Times article this week on Dubai property heads off-plan, reports from Standard Chartered and Morgan Stanley were prominently cited in predicting a fall in property prices by the second half of next year, due principally to oversupply. Yet, by Morgan’s own admission, tracking supply as well as demand is difficult because access to data is limited.  The lack of such substantive data did not dissuade Morgan from making a call, which appears to be more speculative than factual.

The Wall Street Journal recently published “Celebrity Endorsers Help Lure the Rich to Dubai: Brad Pitt Will Design Five-Star Hotel, Resort; Even B-List Makes It.” Beyond the talk of celebrities and buried in the latter portion of the article is the following:

“That said [in light of the threat of a Las Vegas-style property bust and recent scandals involving emirate real estate players ], there are few signs that investors are shying away from the region’s real-estate market. According to Dubai-based research firm Proleads, about $2.4 trillion in real-estate projects are currently under construction in the oil-rich Gulf Cooperation Council region, which includes Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman. Dubai alone, the second-largest emirate in the U.A.E., after Abu Dhabi, expects $50 billion in real-estate investment by 2010.” (Emphasis added)

By way of the New York Post, Reuters reports the Abu Dhabi Investment Council is under negotiations to buy a 75% stake in the NYC Chrysler Building, an investment valued at $800M.