Real Estate Slowdown, not Systemic Collapse, Says Citi

“Our positive long-term, fundamental outlook for Dubai real estate (particularly government backed developers) is unchanged; we expect ongoing white collar immigration, controlled addition of new supply and price rises towards global ceilings”, it noted.

Nevertheless, the report also pointed to changes in the macroeconomic outlook saying, “After a c50% spike in oil process in 1H08, conditions have changed materially over the last three months and the risks of a slowdown (rather than the collapse implied by variations of equities such as Emaar) have risen substantially” it concluded.

It went on to add that liquidity among Gulf Banks has dried up bringing into focus the bias to real estate and construction of local bank loan portfolios. It said that maturing Dubai real estate regulations are hurting some of those who benefitted most from the immature phase of the market, i.e. speculative developers and speculative investors also saying that anti-corruption investigations have intensified across corporate Dubai.

Underlining the exposure of UAE banks to the sector the report noted that the central bank restricts lending to one sub sector of the economy to 20 per cent of loan book. It said central bank data showed that the Construction sector alone accounted for about 10.6 per cent of loans disbursed to residents (both citizens and expatriates) across the UAE banking system at the end of 2007 compared to 11.5 per cent in 2006. It said a sample of UAE banks that account for 97 per cent of total system loans (excluding mortgage providers, Amlak and Tamweel) disclose data in annual and/or quarterly reports on their loan book exposure to both Construction and Real Estate sectors is 23 per cent (see table).

However in the case of Dubai Islamic Bank the report said its holdings in Tamweel and developer Deyaar compound its exposure having the lowest loans to deposits ratio.

Investors in the real estate market continue to fret over the state of the sector and stocks have been particularly badly hit with bellwether Emaar plunging more than 24 per cent this month.

On Sunday shares in the property giant declined 8.42 per cent to close at Dh5.42. In its report Citi said this was overdone trimming its calculation of target net asset value from Dh21 to Dh15 with a worse case scenario of Dh10.

mark_townsend@khaleejtimes.com