Storm Clouds Ahead?

Storms are unusually what characterized life in the UAE for what seemed like an endless week in January 2008. Rains that lasted days, like an Asian monsoon, left streets and neighborhoods flooded and lots of trauma for drivers.


Incredible image of recently constructed Dubai Marina.

This recent report (21 Jan 08) from the online news source AME Info, could lead to trauma in the real estate and construction industry if it turns out to be true:

40% or Dhs587.7bn ($160bn) of the current Dhs1.5tr ($400 billion) worth of real-estate projects in Dubai have been 'temporarily suspended' due to defaults in payment for core building materials which are soaring in price, reported Khaleej Times.

The report is brief and its threatening forecast is attributed to the CEO of a Riyad based property investor.

"Is this anyone in the know," is one thought that comes to mind. If it were in any way true it could spell disaster in an industry that is already plagued by what seems like incessant delays. On the other hand, a glass half full perspective might reason that it is simply more of the same rather than a looming disaster.

The report, in fact, seems incredulous for more than reason of its source. 40% of projects have been "recently suspended." Suspended by whom? Is there a government regulatory agent in Dubai which summarily suspends projects? True, a large percentage of construction projects--perhaps over 50%--are in fact government sourced. Therefore, such a suspension may not be out of the realm of possibility.

In any event, such a pronouncement will need to be echoed by other, hopefully more established voices before gaining credence. If, on the other hand, weeks and months pass and the current level of project delays significantly increases, then this traumatic warning will have been bourne out. I, for one, as a property investor, will be scanning the news with fingers crossed.

Postcript:


Photos found at Skyscrapercity.com, attribution unspecified.

One must wonder, if the Riyad investor's warning has credence, how this relates to RERA, Dubai's new Real Estate Regulatory Authority. RERA has made it a requirement, as of year-end 2007, that developers place payments received for off-plan or U/C properties into escrow accounts. This will have certainly impacted the cash flow of most developers. Could this not be a major if not the critical contributing factor to the crises described in the report? If so, as needed as the RERA development has been (it provides badly needed protection to investors, whose payments were otherwise not guaranteed), the timing of its implementation may turn out to have been counterproductive, if not disastrous.

Similarly, the government's issuance of a much needed amnesty law in 2007, which afforded many construction laborers the chance to return to their countries of origin free of retribution for visa overstays, had the counter-productive effect of removing critical work forces from a large number of projects under-construction. Certainly, this was the right thing to do by the laborers and for the country and industry-at-large, but the problem may have been in the timing.

More detailed version of the article linked to above.

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