borrowed kerosene. Rise and fall of the real estate market of Dubai

In October 2008 of the year, when the negative impact of the financial crisis was already felt in many countries of the world, the head of Dubai's largest state-owned development company Nakheel announced a mega-project worth $38 billions. What fruits did his self-confidence bring?

"I'm sure, that most of you are rightly wondering, why are we launching this project ", - said then the executive director of the company, Chris O & rsquo; Donnell at a press conference. Judging by his words, I got this picture: despite, that in the coming years, while construction is underway, the global economy is facing serious fluctuations, the project needs to be implemented, as the demand for housing in the emirate significantly exceeds supply.

“Market fundamentals are absolutely stable, - said Chris O & rsquo; Donnel, "There shouldn't be any collapse".

However, since his speech, Dubai property prices have dropped by almost 50%. Local development companies have cut a huge number of jobs and have frozen many projects. Foundation-laying of new skyscrapers has been postponed indefinitely. More than a year's decline in market indicators peaked last week, when the press reported that, that Dubai will try to restructure $26 billion debt Dubai World, holding company, managing many state ports, infrastructure facilities and enterprises, operating on the country's real estate market.

From the sand to heaven

Huge bubble, growing in recent years in the local real estate market, caused a serious collapse. Before the crisis in the UAE, a desert country with a population of only 4,5 million people, construction of facilities with total cost was carried out $430 billion. According to Middle East Economic Digest, company monitoring development in different regions of the world, most of the projects were located in Dubai.

Real estate boom in the UAE was fueled by readily available lending, chaotic market situation, the presence of speculators and the sweet oriental "songs" of the Dubai authorities, including the hereditary ruler of Dubai Sheikh Mohammed bin Rashid Al-Maktoum.

His vision of the city, which is revolutionary for the east, is tolerant, modern capital, open to the world and diversity of religions - always annoyed Arab neighbors, including some conservative "bigwigs" from Abu Dhabi, UAE capital. But for others, Dubai has become an example of the successful application of the Western financial system by a modern Arab state.. For example, President Barack Obama in his June speech in Cairo named Dubai an emirate with successful economic development.

The majestic panorama of Dubai is the main reason for the pride of the residents and authorities of the emirate. At a recent parade, dedicated to Dubai National Day, men, dressed in traditional arabic clothes, mock-ups of the most prominent buildings in Dubai were ceremoniously carried before the assembled crowd. Among others were models of Burj Dubai - the tallest skyscraper in the world, which is due to open in January 2010, as well as the sail-shaped Burj Al Arab Hotel and The Mall of the Emirates, in which, besides shops, there is also an indoor ski slope.

“Our leaders have achieved tremendous success, - said representatives of the Dubai business, watching this parade. - And what about the crisis… when we get out of it, we will be even stronger, than before ".

Local officials and builders justified the breakneck pace of construction in the emirate by Dubai's proximity to Asia and Europe, no taxes, free and tolerant lifestyle and the role of the emirate as a center of business activity in the region. High-ranking employees of foreign companies, architects and realtors flocked here looking for, it would seem that, unlimited possibilities for the implementation of large-scale projects. Real estate investors also believed in this "Eastern dream", at least, before, how global financial markets plunged into deep recession. Then buyers started to leave the markets, employers cut staff, and companies postpone expansion plans.


The result is an extraordinary oversupply in the market. Dozens of newly completed buildings along Sheikh Zayed Road have been filled with "For Rent" signs.. According to Colliers International agency, the vacancy rate for office space in new buildings was about 41%.

Not so long ago, the Dubai government requested that Dubai World debt be deferred by six months or more.. Then the local authorities stated, that in the near future they plan to start a multi-phase restructuring of the company's debt. Including plans to restructure $6 billion in debt, accumulated as a result, that the state-owned development company Nakheel made rash lending. They approve, that the restructuring will include various options for deleveraging *, including the sale of assets. Reported by Dubai World, the company has already started "constructive" negotiations with subsidiary banks.

International stock markets have already recovered slightly from the shock, however the implications are not only financial. New debt reports reveal differences in positions between Dubai and the UAE capital, Abu Dhabi. According to unofficial sources, the federal authorities were furious, that Dubai is seeking suspension of debt repayment. These disagreements could destabilize an important US ally in the Persian Gulf, since dubai, being a re-export and offshore financial center for Iranian businesses, viewed as critical to the success of the US campaign to isolate Iran.

In recent days, officials from Dubai and Abu Dhabi have vied with each other to declare their unity. However, the UAE Federal Government, which organized a large-scale bailout earlier this year (rescue plan) Dubai companies worth $10 billion, did not offer assistance to Dubai World.

Flight Chronicle

Dubai's growth began in the early 1980s, when dwindling oil reserves pushed Sheikh Mohammed and his father to diversify the local economy. As a result, luxury hotels and the entire infrastructure appeared in Dubai, necessary for that, to lure wealthy tourists from India to the emirate, Asia, Middle East, as well as Europe and Russia. IN 2002 year Sheikh Mohammed allowed foreigners to acquire real estate in full ownership in certain projects. As a result, investors began to feverishly buy up local real estate, acquiring many projects under construction.

IN 2004 year, when Nakheel announced his project called Palm Jebel Ali, British Indian Aarti Chana planned to invest her savings in real estate. Palm Jebel Ali is the second spectacular Palm Peninsula after Palm Jumeirah. It had to include pile houses, forming a 7.5-mile chain in the form of the words of the poem, written by Sheikh Mohammed: "Only a person with a broad vision can write on the water".

According to Nakheel, many objects are due in December 2009 of the year. Aarty Chana, made a 10% down payment on a five-bedroom villa worth $780 thousand., for this she sold her house in the vicinity of London. "I believed in the" Dubai fairy tale ", - she says.

IN 2006 Sheikh Mohammed merged several government companies into the Dubai World holding and appointed Sultan Ahmed bin Sulayem as its leader. In turn, Ben Sulayem appointed Australian Chris O & rsquo; Donnell as the head of Nakheel, who at that time headed a promising company in his homeland.

by the way, Sultan Ahmed bin Sulayem and Chris O'Donnell declined to comment on this article. Representatives of Nakheel, as well as the representative of the ruler of Dubai, did not respond to authors' emails.

Nakheel had a card in hand and the company was preparing to open the first of the palm projects, Palm Jumeirah, and also started to implement the next two projects. In September 2006 year she managed in one day to sell all the villas costing from $654 thousand. in the Jumeirah Park project (its area is 369,88 it). International banks and local lenders provided loans up to 97% from the purchase price.

To finance such a large-scale construction, O & rsquo; Donnell Turns To Fixed Income Securities Market. At presentations, организованной в ноябре 2006 года специально для инвесторов, Дубай был назван «прибыльным направлением», которое будет «как магнит» притягивать бизнесменов с Ближнего Востока – от Индии до Египта. according to the forecasts, обнародованным на презентации, население Дубая (которое на тот момент составляло менее 1,2 million people), for 14 лет должно было вырасти на два миллиона.

Инвесторы бросились скупать исламские облигации Nakheel, так называемые сукук (bonds, соответствующие принципам исламского финансового дела). Ввиду такой волны спроса Nakheel, не думая долго, увеличил эмиссию облигаций до $3,5 billion.

According to, provided by the news agency Thomson Reuters, that year the Dubai real estate sector attracted $4,9 bln through bonds and syndicated loans **. Real estate lending increased by 2008 year to $30,4 billion.

IN 2007 a subsidiary of Dubai World bought the ocean liner Queen Elizabeth 2, planning to moor the vessel in Palm Jumeirah harbor and transform it into a luxury hotel.

Autopilot broke

It was at this time that the Dubai real estate market "started to leak". Officials, concerned about, that the market starts to "overheat", adopted several resolutions on building regulation, which were intended to limit speculation. Also at the beginning 2008 the year the authorities began to investigate a number of scandals, related to the corruption activities of some large companies, working in real estate and finance.

However, there was practically no data on the progress of investigations in the press.. Very strange. police, the courts and the companies themselves tried to remain silent. As a result of this lack of transparency, the fight against corruption, instead of, to reassure investors, only scared them away.

«Инвесторы не доверяют рынку», – говорит Михаэль Диаз, юрист из Майами, с представительством фирмы в Дубае. Однако официальные лица ОАЭ утверждают, что они прилагают усилия к улучшению соответствующего законодательства.

In April 2008 года полиция задержала высокопоставленного управляющего одной из ведущих дубайских девелоперских компаний. Компания утаивала факт ареста вплоть до того, пока в прессе не появились сообщения об этом инциденте. Подозреваемый свою вину отрицал.

Далее начались аресты в других крупнейших компаниях Дубая, including in Nakheel. Once again, company representatives did not respond to emails from the authors of the article regarding the investigation of these crimes..

Passengers got seasick

The case of British developer Arthur Fitzwilliam was typical.. He lived in Dubai for two decades and worked in real estate. IN 2004 year Arthur signed a development agreement 1 350 000 quarter. m. desert land, provided by a government company.

The project called The Plantation Equestrian and Polo Club was to include air-conditioned stables on 800 horses, four polo fields, infrastructure, necessary for horse shows, and a five star hotel. Arthur Fitzwilliam began looking for partners to attract additional funding for the project. Eventually, one British banker agreed to lend money in exchange for 30% project shares.

However, in June 2008 years, the Dubai authorities detained Mr.Arthur, banker, the loaner and his colleague. Then, in September, банк Dubai Islamic Bank (DIB) лишил Артура Фитцуильяма права пользования землей, предназначенной для строительства проекта. Besides, According to him, было изъято более 100 пони для игры в поло. Почти год, до предъявления обвинения, он просидел в тюрьме. В итоге в марте 2009 of the year, на основании обвинительного заключения поданного дубайскими прокурорами, власти обвинили семь человек в сговоре с целью обмануть DIB. Артуру Фитцуильяму было предъявлено обвинение в пособничестве этому сговору.

В прошлом месяце его перевели в дубайский госпиталь с подозрением на рак. У дверей его палаты стояло четыре вооруженных полицейских.

Фитцуильям отрицал свою вину, так же как и британский банкир, с которым он сотрудничал. «Я настаиваю на проведении справедливого судебного разбирательства, и я готов действовать в соответствии с местной системой, He says, прикованный к больничной койке. – Люди, осведомленные о сути дела, know, что я невиновен».

По традиции представители прокуратуры Дубая не ответили на просьбы авторов статьи о предоставлении комментария.

На фоне неопределенности в отношении этих арестов кризис, к тому моменту охвативший почти весь мир, наконец-то добрался до Дубая. Когда к концу 2008 года мировые рынки кредитования «застыли», инвесторы из-за рубежа перестали покупать недвижимость в Дубае. And they, кто уже купил, перестали вносить ежемесячные платежи. Nakheel и прочие девелоперские компании начали производить массовые сокращения сотрудников и заморозили десятки проектов.

В феврале прошлого года неприятности коснулись и Аарти Чаны: Nakheel приостановил реализацию Palm Jebel Ali. Были проведены работы по углублению дна, однако строительство так и не началось.

По словам Аарти Чаны, она уже вложила около $550 тыс.в так и не построенный дом. В начале этого года вылетела в Дубай, чтобы попытаться спасти свои инвестиции. Она живет в апарт-отеле вместе с дочерью и старается сплотить других пострадавших инвесторов для того, чтобы подписать петицию в адрес Nakheel с требованием возмещения убытков. «Я этого просто так не оставлю, - she says. – Теперь это моя навязчивая идея».

Экстренная посадка

В октябре Nakheel предложил людям, вложившим свои средства в Palm Jebel Ali, переоформить свои контракты на другие проекты компании, уже построенные или близкие к сдаче.

IN 2002 году Саймон Мерфи купил за $240 thousand. квартиру в проекте Palm Jumeirah и пять лет спустя переехал туда. В настоящее время он является так называемым резидентом-представителем Nakheel (in fact, председателем совета домовладельцев). He says, что в последние недели Nakheel сократил расходы на техническое обслуживание проекта, в том числе прекратил уход за деревьями.

According to him, после объявления об отсрочке погашения задолженности многие жильцы перестали платить сборы за управление недвижимостью (near $700 per month). В компании Nakheel отказались от комментариев. «Многие люди боятся, что их деньги просто «канут в бездну» задолженности Nakheel», – говорит Саймон Мерфи.

И все же «старший брат» поможет Дубаю расплатиться с долгами. 14 December 2009 года власти Абу-Даби пообещали выделить $10 млрд на выплату долгов Dubai World. Из указанной суммы $4,1 млрд будет потрачено на погашение исламских облигаций Nakheel (of them $3,52 млрд – в течение ближайших двух недель). The remaining $5,9 billion is planned to be spent on other needs of Dubai World.

Этих средств должно хватить до апреля будущего года. Однако рынок недвижимости Дубая уже совершил экстренную и не очень мягкую посадку. Will hope, что благодаря пожарным из Абу-Даби самолет не взорвется, иначе осколки фюзеляжа могут зацепить огромное количество инвесторов.

* Инвестиция в долговые инструменты – вклад в проект фирм или путем покупки облигаций или долговых обязательств, а не за счет приобретения общих или привилегированных акций (обыкновенные или привилегированные акции).
** Синдицированные кредиты – займы, предоставляемые группой банков.
*** Делевередж – уменьшение использования заемных средств, снижение доли долгового финансирования.

Authors: Chip Cummins, Stefania Bianchi и Mirna Sleiman (The Wall Street Journal)
Transfer: Nikolai Strelnikov

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