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Should the government rescue the real estate sector?

Should the government rescue the real estate sector?

The property sector in the region is pushing for financial help from the government to help get back on track.

February 10, 2009 1:18 by



A recent report by Reuters says that property and construction executives across the Gulf are asking for intervention by the governments and sovereign wealth funds (SWF) to help revive the regions real estate sectors, which have been hit by the credit crisis.

“Now there’s a role for the government to stimulate the sector as it did with the banking sector. It must stimulate the construction economy,” Fatima Obaid Al-Jaber, CEO of UAE’s Al Jaber Group said at a recent conference. “We in the UAE have the biggest SWF. A part of it should be invested to move the cycle forward and give confidence to the economy,” she added.

“The Saudi SWF has invested in the Kingdom but we need more. We need SWFs to invest and be able to finance as well as be partners in shareholdings,” Khalid Al Zamil, managing-director for strategic planning of Al Zamil Group told Reuters.

Governments in the Gulf have announced multi-billion dollar rescue packages for the financial sector; Kuwait just approved a $5 billion stimulus package, Saudi Arabia’s authorities pumped about $3 billion into the banking system, the UAE Central Bank promised a stimulus of around $32 billion last year, and Abu Dhabi injected more than $4 billion into its banks earlier this month.

A report issued by Standard Chartered says that the bailouts in Kuwait and the UAE are inadequate; it says that the UAE needs to put in at least $27 billion more to enable sufficient lending.

While a recovery of the financial sector will automatically help the real estate sector gain some ground, the latter might need more financial injects in order to stabilize. According to recent report from HSBC, around $75 billion worth of projects in the UAE have been suspended or cancelled.

Furthermore, a report from Kuwaiti investment bank Markaz claims that a high proportion of the Gulf’s population is engaged in the construction and real estate sector: 37 percent in Oman, 35 percent in Qatar, and 8 percent in Saudi Arabia. The delay and cancellation of projects, therefore, has had a tremendous impact on the region’s economies.

Reports blame excessive speculation and greed as some of the causes behind the UAE’s real estate bubble burst, particularly in Dubai; however, isn’t the government also partly responsible for allowing it to happen? If yes, shouldn’t it be helping the sector financially?



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8 Comments

  1. Abdul Gafoor on February 11, 2009 6:34 am

    No need to rescue the collpsed real estate industry in UAE by govt: especially in in Dubai and Sharjah because they made huge profit at the expenses of common man who works 24 hours to save something for their family. in the normal case the expected pay back period for the long term durable product is over 10 years. but here they got back the their capital within a span of 3 years. i have had the experience. ihave worked for a real estate concern there for a year. that time the govt: didnt intervened them from charging such high price for their product.
    so they made a huge profit during that time. now its time of ultimate consumers. its a cycle everybody should have equal opportunity to tap the market condition. did the govt: ready to pay back anything for the affected customers? then only only this question arises here.

     
  2. Joe on February 11, 2009 7:09 am

    It was Dubai’s governments lack on intervention when it was needed in 2007/2008 that added to the demise of the Dubai Property market.

    The government were happy to say they were leaving the market alone to find its own value… which was an incorrect decision, because the purchasers were mostly speculators and we all knew that!

    Now that is has crashed; stay out of it, that is its market value…

     
  3. DG on February 11, 2009 7:53 am

    The property speculation , high escalations and unreasonable interest rates chreged by UAE banks on mortgage loans are totally controllable through the regulators. Of course they have a major role to play in fixing the mess by controlling the supply side and giving ownership rights and near free residence rights to the people they have asked to be part of their success.

     
  4. Chris Jeffries on February 11, 2009 9:02 am

    It is time that governments around the world became more accountable. Rather than constantly bailing out the banks who have proved their incapacity to manage money, why not look for a different model.
    It is the people who are encountering difficulties. Can I be brave enough to suggest the the government establish a fund to assist people with completed property who are unable to make payments, or even further, offer funds direct to home owners as a fixed percentage of current valuation, to assist them directly. This would not be a loan, but a partnership whereby the government owned that proportion of the property and was able to avail of future profits, when the property is sold. The government should take equity in any organisation that it bails out. After all, it is the money of the people that it is spending on bailouts. Offering money to financially distressed people directly, must be better than unaccountable priming of banks which have no tangible plan or results that are assessable under pre determined key performance indicators.

     
  5. Mo on February 11, 2009 9:52 am

    The Government definitely needs to bail out the property sector. There are too many jobs at stake and the economy depends on the real estate sector. However, this should be to bail out projects that needed to be completed or have already started construction and not for projects that were on the drawing board. There is a point to understand that the cause of the bubble burst was from the global crisis and not from the real estate itself. Majority of buyers are from the UK, India etc and abroad. If the global prices hadn’t put them in a bad shape, surly you would have seen buyers still flocking in. Now, most buyers are holding off because they don’t have a plan B in case they pay 30% of a unit and there are no banks to help them mortgage it. Everyone knew there needed to be a price correction, that is how real estate market works, in waves. However, this crash is far worst than anticipated and needs to be revived to stay afloat and bounce back. This will also show the strength and confidence of the leadership that this country has when its people are in dire need, including expats.

     
  6. JT on February 11, 2009 10:04 am

    The government has to do something not necessarily about shoring up its own real estate, but protecting investor rights in this crisis. Dubai can then recover after a few years.. otherwise this is it! and elts not be fooled at the percentage of the population reliant on the sector its huge!

     
  7. Umar on February 11, 2009 12:12 pm

    There is no need to bail out the real estate sector directly. With the govt. injecting funds in the financial sector, they have to encourage banks to open up credit flows. Why blame the speculators alone. Speculation is a by-product of the sentiments of the people who have the ability to invest. We have to understand that for as long as demand and supply mechanism is in play the price is determined along with it. As long as the world’s sentiment was positive about Dubai and people had the money to invest, Dubai was the most attractive market. Even today, if banks open up the credit flow, We will automatically see revival of the real-estate sector.

    The government should instead focus on building a friendly environment to make expatriates consider UAE as their permanent base instead of taking a short term view on the country. This should be the priority of the government today.

     
  8. Kevin on February 11, 2009 8:04 pm

    Dubai will burn its fingers if it intervenes now because it will further aggravate the chaotic and complex real estate sector. It must just wait and watch patiently.

     

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