People disinvesting Dubai, UK better for real estate investment: Knight Frank

27 Nov 2009,


Pranay Vakil, Chariman, Knight Frank gives his take on the
Dubai financial crisis and what it means for property prices and
investment.

How are you reading the situation? Are you firstly surprised
or you pretty much expected this coming by because we had heard
of some problems brewing in Dubai time and again, sporadically
there was some news that kept coming out?

Well, that is true because most of the demand that exist in Dubai
 is what I would like to call the imported demand, which comes
 from outside of Dubai. There is very little real demand coming
from within, so if the west was affected by the recession,
the demand in Dubai went down drastically. To give you an example,
 if a villa on Palm was available for say 12 million Dirhams just
about 18 months back or may be two years back, it is now available
for just 4 million Dirhams, and you can see the drop from 12 to
just 4. Now that has happened mainly because the demand has
completely evaporated and the supply has overtaken the shrunken demand.

Sure, so how do you see this situation now playing out because we
are talking about a couple of the US banks having exposure and
perhaps having worked on the syndicated loan that Dubai world
has on its books right now, so in wake of those defaults that
may come by in the future. They have just pointed out that right
now, they cannot make their payments. It could have like a ripple
 effect on the provisioning and the accounting of couple of the US
banks who are in transaction with Dubai world?

Well, that is true but that is not going to improve the demand situation.
I mean see after all the property market works on demand and supply like
any other market and if the demand is not going to pick up in the near
term, what we are doing is just a first-aid to the banks just to kind of
 complete some obligations for having created the supply. I think only the
 time seems to be the remedy where over the next three to five years,
demand and supply should equate.

What kind of a hit could certain Indian real estate company stake on their
 exposure in the Dubai real estate market listed or otherwise?

Well as you know there are couple of firms from the Middle East that are
 involved into real estate in India, I mean, Emaar being one of them. Now
 see basically they had come here with the money bags to kind of invest
into the real estate in India but I think those money bags are no longer
available from the Middle East. I mean what they are trying to do now is
to create the resources from within India itself and invest it into the
 projects with they have ongoing. But, of course having said that the India
 real estate is far stronger at this point in time compared to the
Middle Eastern real estate.

Sure but what about Indian companies which are of course within
 Indian jurisdiction who have exposure to the Dubai real estate
 market and there are handful of those, could these get significantly
impacted I mean you would have assess the realty situation in Dubai as
you rightly pointed out as well, could that have a significant impact of
 some of the balance sheets of Indian real estate firms as well?

I think there are some very well known companies that have presence
 I mean one of them is the tallest residential tower as you know in Dubai
but the demand has slowed down for all of that even from India. On the
contrary there are a number of people wanting to disinvest in Dubai and
kind of pull their money out and put it into some of the market like may
be London or UK which today is a very good market to invest.

What would this do to the liquidity situation for real estate firms
in India, one could it have an impact in terms of the fact that its
real estate per se which will get impacted in Dubai and two in terms
of how would the funding situation change for some of the real estate
 companies. A significant amount of people from the Middle East
 buy apartments into India that is one and two the kind of
 funds that will coming via the Middle Eastern route,
do you think that will get impacted?

Well, as you know there are 16 IPOs waiting in the wings
and they will be hitting the market very soon. We are
expecting them to bop up about in excess of 10,000 crores.
I think all of that is going to have a huge impact mainly
in India but some overflow of that or a ripple effect like
you said also in the Middle East.

Source:ET Now