We got the cash to build this, says Dubai
Many of the new announcements do not represent new plans, but the re-launch of projects that were first launched in 2006 and 2007 and subsequently placed on hold following the impact of the GFC in 2008.
November 29, 2012 11:26 by M. Aldalou
Since this week’s plans for the ‘Mohammed bin Rashid City’ were unveiled, the development – along with the challenges and benefits it could bring – has been the talk of the town. A lot has been said about this development and not just by Kipp but other media outlets, investors, real estate specialists and economists as well. It is an enormous project meant to be handled both my Emaar Properties and Dubai Holding.
The general notion carried by forecasts has been arguably positive, stating that it is, if anything, an indication of growth, positive strategy and ambition. And for those that questioned it? Well we were simply told that this development is so far into the future that analysing its threats would be relatively moot. Building it in phases (with caution) would do the trick.
The second theme of concern revolved mainly around its funding, with raised eyebrows and nervous sighs – many wonder why tens and tens of unfinished projects that continue to collect dust remain ignored while new developments such as the recently announced theme park, the Taj Mahal replica and the MBR City are in the pipeline.
“Many of the new announcements do not represent new plans, but the re-launch of projects that were first launched in 2006 and 2007 and subsequently placed on hold following the impact of the GFC in 2008,” says Craig Plumb, head of research at JLL. “Another feature of more recent plans has been there development within a more mature strategic framework, with the recent approval of a new Urban master plan for Dubai.”
Kipp was told earlier by Richard Paul, Director of Residential Valuation at Cluttons, that despite significant improvement in the real estate project market over the last 12 months – it has been extremely selective with only certain areas in the emirate enjoying the benefit of increasing value and improvement. “All these areas work separately where we should be looking at Dubai as a multi-faceted market,” he said.
“Another feature has been their concentration in more central locations within Dubai, rather in more remote or peripheral locations that are more difficult to service,” continues Plumb. “The Mohamad bin Rashid City announcement represents an extension of the existing Downtown and Business bay areas and incorporates some components that were originally envisaged in more remote locations beyond Emirates Road. There has been a definite shift in investors thinking over recent years, with a preference for new projects within existing communities (eg Downtown, the Marina, Palm Jumeirah and Arabian Ranches) rather entirely new projects.”
A morning report by AB revealed a surprisingly confident tone by the Dubai Economic Council, where Hani Al Hamli, secretary general was quoted as saying that Dubai has access to funding to finance these ‘mega’ projects. Of course, Al Hamli insisted that the sources remain unknown.
“We do have our own resources and way to finance… We are sure that these projects will be achieved,” he said. “We have our own resources in the emirates. I don’t want to disclose… This is managed by the finance department.”
Plumb informs us that banks have lost almost all appetite for major lending, especially to real estate projects and investors. They have, at the very least, become more cautious about debt and their ‘exposure to off plan real estate projects’. “In reality, this is likely to ensure that the project is developed in multiple phases over many years.”
“The new hotels or retail malls are unlikely to be built immediately as there is clearly still some capacity within existing projects,” he concludes. “An important lesson for the previous cycle is the need to attract anchor tenants or major demand generators ahead of other components of the new projects. An example of such a demand generator would be the proposed Universal Studios entertainment project.”