David Nicholls's Blog

I am a director of EM Concepts a company set up to help international property investors weather the storm of the credit crunch by offering investments only in markets that we feel have a strong case for protection from the current financial crisis. In the blog I will be giving comment on current affairs and the effect they have on the financial crisis and emerging markets.

Dubai's Downturn

Currently 4/5 stars.
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Friday, January 09, 2009

The recent financial crisis and the effects that it has had on the region are proving to be a much more frantic time for Dubai than was previously thought. Regional banks and governmental organisations had leveraged themselves heavily from the capital markets and into the real estate industry confident of future growth. Larger developers (and some smaller ones) took on large land and construction commitments, payment of which was met by rapid off plan sales and easy access to the credit markets.

As liquidity has frozen and sales on many the expensive projects have stalled, banks have realised they are under capitalised to cope with even a moderate rise in loan default rates and any smaller developers over exposed have to rethink plans/ stop building until new financing arises.

When will this be?

Although information is scarce in the Dubai it is widely held belief that the regions sovereign wealth funds are moving frantically behind the scenes to re finance banks and shore up government backed real estate companies such Dubai Properties, Nakheel and Emaar. Come Feb/March the picture should be clearer, but expect much more conservative expansion plans and a period of consolidation as all funds are directed toward projects under construction.

How this leaves the landscape

It seems the face of the UAE is changing as a result. There is little doubt that Abu Dhabi will emerge as the commercially strongest state of the region and may even find itself in ownership of a few Dubai assets. However on my recent visit there was another thought that struck me.

Dubai as a tourist destination - apart from the shopping - could be damaged significantly if buildings remain half finished. This may lead to its more northerly neighbours - notably RAK, benefiting from being slower off the credit consumption mark than Dubai. Less half finished development projects, a much nicer coastline and proximity to other areas such as Oman make it a better option for tourism today and in the future.

Although Dubai beats it for jobs, restaurants and entertainment now, RAK has the UAE's (Abu Dhabi included) first offshore solar power venture www.solar-islands.com, well thought out construction and infrastructure projects, steady attraction of business locating there and an airport being designed to accommodate private space travel (whenever that becomes a reality) but already large enough to accommodate its visitor expansion plans.

Much like Dubai itself visibility remains poor for the view when the dust does settle. However in this case of the UAE it would be unwise to right off the old fable of the tortoise and the hare.

Is change is upon us?

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Wednesday, November 05, 2008

05/11/09 - Guys Fawkes in the UK, but the real fireworks are lighting up the sky across the pond as Barack Obama wins the general election and becomes the first black president of the United States. It's hardly a surprise; however in a year full of negative monumental historical markers, in Obama's victory we may finally have a positive one.

As the banking crisis fuels rising unemployment and the sharpest fall in US (and just about everywhere else's) consumer confidence since records began, a sense of change and what will hopefully be a renewed sense of confidence in the worlds largest economy can only be a good thing. The current crisis of confidence has swept through the world markets like a forest fire, as the world scrabbles for risk aversion in the fear that what is bad for the US is bad for everybody and everything and in doing so create a self fullfilling prophecy. The question many will be asking now is, will this political change start to reverse that effect? My answer: If only things were that simple.

I feel we still have a long way to go particularly in the West before confidence is restored. There will be more bad news and fatalities amongst banks and hedge funds along with large corporates, possibly in the retail industry, certainly in the automotive industry. I think what we will see with the new U.S government is America shrink within itself over the next few years to get its house in order - and it has a great deal of cleaning up to do. Through this process, I hope an eventual lack of shock news and "gung ho" foreign policy, some semblance of norm and common rationality should return to the commercial world.

This rationality should be reflected in the realisation that there has been a large shift in economic influence away from the West to the East, Middle East and parts of Latin America. Why? America (and the UK for that matter) can not fix its problems alone. Already Sovereign Wealth Funds from the Middle East have been invited to invest heavily in western corporates' and banks, for large equity discounts. In time this will undoubtedly see the Middle East have greater global influence and power over the US decision makers.

Unilateral ties are being agreed daily between the Middle East and the Latin American countries with strong agricultural and energy industries/prospects. I would think these roots will see the US foreign policy more conservative with less sanctions and more free trade with Latin America and if the dollar remains relatively strong their export industries and GDP should continue to grow faster than that of the West in future years.

We could go in to more depth but in short (and will do over the coming months), but breifly what does this mean for the international property? I lay myself open to criticism but simply believe you are probably better off looking for value in undervalued economies, such as Colombia, rather than stale ones closer to home. Change is indeed upon us.....

David Nicholls

Subjects Covered by David Nicholls

David Nicholls's Blog

Dubai's Downturn

Is change is upon us?

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