Select Property Statement: Dubai Debt Financial Crisis

Posted on: December 14, 2009

Written by Select Property

On Wednesday 25 November, the Dubai government said it will ask creditors of its flagship firms Dubai World and property group Nakheel for a debt repayment standstill as it restructures the Dubai World Group.

Select Property realises that people have been left apprehensive by the news and we feel it only necessary to share our thoughts and reflect on any impact this will have on your investment.

The news has gained global attention over the last few weeks sparking rumours about Dubai’s stability and the affects on the international banking sector. Daily articles in the UK as well as internationally have over reacted to the news and as such ripple effects were felt throughout the world’s stock markets. The situation has since eased as Dubai’s government announced today, December 14th, that it has been given a $10bn (£6.13bn) handout from its UAE neighbour, Abu Dhabi to help it pay off its debts. News of the payment boosted share markets in the UAE and Dubai’s main share index closed 10% higher, while Abu Dhabi’s rose more than 7%.

It is important to put this news in perspective as the level of debt itself in comparison to the likes of the UK and US national debt is comparatively low – the total Dubai World debts is considered to be approximately only 10th of the UK national debt – and the efforts made by Dubai World to restructure approximately $26 billion of debt demonstrates that the problem can be contained quickly, reassuring and re-building investor confidence. It is also important to understand that Dubai World holds stakes in a diverse range of assets in over 100 international cities, and many of its prime assets within its own shores are owned debt free.

From its initial conception Dubai has been built on strong underlying economic fundamentals which have been an important factor in its success. The fact remains that Dubai has by far the best infrastructure of any city in the region, its zero% corporate and income tax have led to several multi-national organisations setting up base and attracting professionals and tourists from all over the world to enjoy the opportunities and lifestyle offered there. For these reasons, whilst the news is a set-back and has inevitably dented confidence in Dubai, the UAE is now taking the necessary steps to rebuild its standing and any short-term confidence attrition will not detract from the future stability of the Emirate.

A large part of the global reaction can be put down to the announcement being unexpected and coming just before a national holiday in the UAE, depriving the financial markets of further information whilst it came to terms with the news. With confidence in the banking sector still clearly fragile after a number of high profile bail-outs, the concern pointed less to Dubai’s level of debt than to the unknown exposure of international banks generally to overseas investments.

What does this news mean for your investment?

Select Property’s developments are predominantly located in Dubai Marina. Emaar Properties PJSC is the master developer behind the marina, a Dubai-based public joint stock company, which shares Dubai’s vision for growth and stability. The recent announcement related only to the financial situation of government-owned investment vehicle Dubai World and their financial standing, a completely separate entity to Emaar which bears no association to your investment. Emaar remains on a stable financial footing and Select Group is 100% committed to delivering all their projects on Dubai Marina – arguably the best established most sought after residential community within the whole of Dubai currently.

Ras Al Khaimah is the most northern of the emirates, forming part of the seven United Arab Emirates. As a separate Emirate, Ras Al Khaimah (RAK) is run by its own ruling family with no parliamentary system and therefore is in no way affected by the recent Dubai reports. The emirate has a strong platform on which it has built its economy, becoming a major producer of ceramics, cement, and pharmaceuticals with an aggressive development program which focuses predominantly on tourism and real-estate. Although investing heavily in infrastructure and real-estate development projects, its strategy for growth has been more conservative than its neighbours in Dubai.

Rakeen, master developer of Ras Al Khaimah’s man-made Al Marjan Island, has announced major infrastructure work is to commence this month on phase two of the $1 billion project and Select’s Pacific development located on Al Marjan Island is now well underway, in line with its June 2011 construction schedule. Piling is 100% complete and construction progress continues to develop as the 1st of its 6 residences is now above ground.

What about Select Property’s financial situation?

It is important that you are confident that your funds are protected and Select Property and its development partner Select Group have prudently managed their finances from the very first project together. We do not have the financial commitment of other companies and have a model based on minimal risk. Each development has a separate trust account, ensuring that every payment our customers send through goes towards what it should do; building their property. Select Group has delivered 3 out of 5 projects under construction on Dubai Marina, and all the others are progressing in accordance with the latest timetables for delivery.

As a business we remain 100% committed to the property market in Dubai and Ras Al Khaimah and wholeheartedly believe that purchasers have made a strong investment. By selling and developing in highly desirable locations, such as Dubai Marina and Al Marjan Island, Ras Al Khaimah, and delivering high quality products, we believe we are providing customers with prime investments over a medium to long term.

The first of Select’s developments, The Point completed in July of this year and has already experienced a high demand for rentals, with over 60% occupancy from those investors looking to rent and owners earning a rental yield of between 8% and 11% in year one. A further 2 projects, The Torch and Bay Central follow closely completing in July 2010 and December 2010 respectively.