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Gulf Real Estate Sector May Face Credit Woes: Banker

“The days of cheap money are gone. Be prepared to pay more,” Khaled Al Kamda, group head of Dubai Islamic Bank (DIB), said on Sunday. DIB is one of the Gulf’s biggest lenders and a key player in the massive developments in the UAE.

“Real estate will suffer, big real estate projects will be revisited ... put on the back burner,” he said at a real estate conference. “The viability of these real estate projects will need to be revisited.” Kamda’s comments are one of the starkest reminders to date that the credit crisis sweeping the United States and Europe will not pass the Arab peninsula by, despite billions of dollars of petrodollar inflows and strong economic growth.

Experts expect the pace of growth in the Gulf to decline but remain robust as the energy exporting economies invest windfalls from oil and gas exports in infrastructure and real estate developments.

But tightening conditions on the international credit markets are having an impact on the Gulf financial sector and has led the region’s biggest central banks to launch emergency measures to provide bank funding or guarantee deposits.

“With tightening credit, the developer has to revisit the fundamentals, the whole basics (of projects),” Kamda said. The UAE, home to tourist haven Dubai and its artificial palm-shaped islands, needs to raise Dh50 billion ($13.61 billion) for real estate projects in 2009, he said.

Shares in Dubai-based property firm Emaar have reflected these fears, falling by over 60 per cent so far this year.

Kamda said property developers in the Gulf could pursue mergers and acquisitions as banks become more choosy about which projects they finance during the global credit crisis.

“This will not mean the death of strong developers, but there will be a wave of consolidation among developers ... which is normal under the current circumstances.”

Outside boomtown Dubai, however, where speculative inflows have helped to drive the building boom, there remain several regions where growth is based on real demand.