Investors stay put in Dubai as realty rates tumble 50%

Written by Mona Mehta | Mumbai | Updated: Dec 12 2009, 05:19am hrs
Dubais real estate sector is feeling the jitters of the crisis, with prices plummeting over 50% in the past few weeks. This has prompted institutional and other investors to stay focused on Dubai rather than scout for investments in India, say industry experts.

Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, told FE, For a long time now, a multitude of apartments in Dubai are unsold or without tenants. These units were invariably held largely by investors who had purchased them to sell at higher rates, which never happened. The question now is how many of these investors have the ability to service their mortgages. Dubai has been a safe haven for investors for many years, offering fantastic returns of 40% plus per annum. In recent years it has attracted clients who have been trying to get on the investment ladder.

According to Assocham, the Dubai real estate market in October 2008 was valued at $475 billion, whereas the Indian real estate market in 2008 was valued at $16 billion, thus showing that the market size of Dubai is 30 times that of India. According to a UBS report, there will be an excess of 30,000 to 40,000 residential housing units in the next 12 to 18 months in the best case scenario and 90,000 in the worst case.

Hircon International, developers of 23-Marina in Dubai, is waiting for a green signal from the authorities to start construction of its second 20-storeyed residential building at Business Bay in Dubai. Niranjan Hiranandani, MD, Hiranandani Constructions, said, Whether it is a hotel, service apartment or residential plot, we will decide in six months. Today, it is important that the plot is in Hircons name with no debt associated with it so we have the luxury to wait and decide. As per earlier reports, Hircon was to start construction of this project by March 2008 and complete it in 18 months. Mumbai-based Satellite Group, which was earlier planning to start construction of its real estate project in Dubai, has put its plans on hold. The companys sources told FE, We hope to start construction only in the next 12 months.

A few months ago, Dubais big developers were still talking about recovery in the first quarter of 2009. But the crisis has prompted even its second-largest property developer, Deyaar, to put at least 25% of its projects on hold.

Bank of Baroda has about Rs 5,000 crore of exposure to the Dubai property market and State Bank of India of less than Rs 1,500 crore, as per reports. Omaxe has disclosed exposure of Rs 40 crore. Other companies having exposure in Dubai include L&T (over Rs 100 crore) and Nagarjuna Construction (over Rs 400 crore). Amit Goenka, national director, investments, Knight Frank, said, The Dubai construction boom is expected to come to an imminent halt with many partially-finished projects littering the landscape as investors walk away. It remains to be seen how much of this excess supply will eventually be reclaimed by the desert.