Cityscape's big dreamsneed big resources

DUBAI // Now that developers have rolled out some of the most ambitious property projects in history, including a tower more than 1km tall and a Dh350 billion (US95.27bn) community full of iconic buildings, the challenge will be to gather the resources to move from a four-metre scale model to the real thing. Not only have local and international stock markets plummeted in recent weeks, but construction costs are high, labour is in short supply and banks have restricted their lending.

The stars would seem aligned against these dream projects. But analysts and property executives said at Cityscape Dubai yesterday that the most solid projects by the most experienced developers in the UAE and Middle East in general would still receive bank finance. "The market does have liquidity? But it is now a lot more cautious in terms of the projects it chooses. It is looking for quality, for developers with a track record," said Sina al Kazim, the chief executive of Meraas Development, the developer of the Dh350bn Jumeira Gardens, which will include a 600-metre tall building.

"We have approached UAE banks and have received very positive feedback on the Meeras projects," he said, adding that they had assured him they wanted to offer financing. Chris O'Donnell, the chief executive of Nakheel, which announced a tower called Al Burj that will rise more than 1km, said the project would be funded by pre-sales and 270 hectares of land around the tower. "A project of this type was always going to take 10 years, so when you fund a project like this you have to take into account economic cycles," he said.

And as projects across the country are facing delays because of construction bottlenecks and management difficulties, the larger developers are taking a different approach than during the booming, more care-free years. "Big companies are starting to talk to each other," said Moosa al Hashemi, the chief commercial officer for Manazel Specialists. "It's not about challenging each other so much any more, it's about the future of the country."

He said his company, which is based in Abu Dhabi, was in talks with several other large firms about creating joint ventures and other arrangements that would support the local market. Merger rumours have proliferated in the market in the past two weeks, but so far the only solid evidence of a complete merger was the announcement earlier this week that Amlak Finance and Tamweel had entered "exploratory merger talks". The two companies are the largest home-finance providers in the country.

One question buzzing among businesses at Cityscape this week concerns international and regional investors: will they keep investing in the UAE? "Our sense is that the issue of sentiment remains positive, but probably not as exuberant as it was two years ago," said Blair Hagkull, the managing director of the regional office of Jones Lang Lasalle, a property consultancy. "Investors are pulling back money into the region, to some extent. They feel this is one of the best markets to be in."

Contributing to that positive sentiment, DIFC Investments, a unit of the state-owned Dubai International Financial Centre, made its first foray into the property market, announcing yesterday that it would invest Dh3bn in Dubai Pearl, a mixed-use property project to built in the Dubai Media and Technology Free Zone. Jones Lang Lasalle released yesterday an investor sentiment survey that found that more than half of Middle East investment funds and developers believed that the regional property market would outperform other regions in the world over the next several years. Of those, the majority believe the UAE and Saudi Arabia are the strongest markets in the region.

The investor sentiment survey involved 350 developers, sovereign wealth funds and high-net-worth individuals, according to Jones Lang Lasalle. "Maturing markets is the key theme here," said Ian Ohan, the head of investment transactions at the regional office of Jones Lang Lasalle. "Investors are looking for strong capital growth in Abu Dhabi, Saudi Arabia and Qatar, reflecting their robust economic potential and more nascent stages in the real estate cycle," he said.

"The issue of market transparency is high on the agenda of investors. This is being aggressively addressed through sustained government initiatives including the enacting of international best-practice legislation and the enforcement of strong corporate- governance initiatives." Despite negativity in the market, the property construction conditions do not actually appear to be getting worse. Prices of building materials already appear to be easing, as demand in the US lowers because of a recession, said Emil Rademeyer, the director of Proleads, a research company that tracks data in the property industry.

Wong Heang Fine, the chief executive of CapitaLand GCC Holdings, takes the long view on the region, especially Abu Dhabi. "What's happening now will separate the strong projects from the mediocre," he said. "The fundamentals of Abu Dhabi and other places in the GCC are strong, but there will be ups and downs. I prefer to think of real estate as our grandfathers and ancestors did. It's the best way to maintain value over a long period of time." [e-mail]

* With agencies