Dubai real estate sector latest developments and their impact


The real estate market in Dubai witnessed mixed performance in 3Q 2010, popular developments with proper amenities and infrastructure fared better than others. The latest developments within the largest government backed market players show all together minor positive signs of slow recovery.

Dubai sovereign bond issue

Dubai has successfully issued a US$1.25bn dual-tranche bond that was four times oversubscribed. The first US$500mn dollar tranche, which matures in five years, carries a yield of 6.7%, with the second US$750mn tranche maturing in 10 years and yielding 7.75%. The bond was four times oversubscribed. The oversubscription is a positive sign of strong investor appetite, and is an indication of renewed optimism about the country’s economic outlook as the government is close to completing of the restructuring Dubai World conglomerate’s debt.

Dubai World plans to sell assets to raise more than US$19bn to pay its debt

Dubai World plans to sell assets over eight years to raise more than US$1bn to pay off creditors. A final agreement is expected soon between Dubai World and its creditors regarding the conglomerate’s US$23.5bn of debt. The final agreement is expected between September 21 and November 21. The group’s main lenders include Emirates NBD, HSBC Holding, Royal Bank of Scotland Group, Standard Chartered, Lloyds Banking Group, Bank of Tokyo Mitsubishi, and Abu Dhabi Commercial Bank which holds US$8.64bn in Dubai World debt. With Nakheel close to finalizing its restructuring process, and Dubai World close to reaching an agreement with 99% of its lenders on the new terms of the conglomerate’s debt, it is  expected a renewed confidence in the sector and improve in liquidity especially with the successful Dubai Bond issue.

Nakheel repays creditors AED3.4bn

Dubai-based developer Nakheel made an AED3.4bn payment out of AED4bn owed to its trade creditors. The company also gained approval of 90% of its creditors for the restructuring plan, under which Nakheel proposed to pay back 40% through a cash payment and 60% through a bond issue. Nakheel announced that it has no intention to sell real estate assets. It also announced that it will begin works on six of its mega projects, and plans to launch six new commercial projects to serve those new developments. The company is close to finalizing its restructuring process. The acceptance of the restructuring plan by creditors is a positive sign that banks are slowly regaining confidence in the sector.

Dubai imposes new housing tax

Dubai imposed a 5% housing tax that will be mandatory for all residential units starting January 2011. The calculation of the tax is based on the annual lease amount while for properties being used by investors in freehold areas; it will be based on the average Rera (Real Estate Regulatory Authority)Rental Index. Properties which remain vacant in freehold areas are also subject to the tax, which means investors have to shed extra value on top of service charges. This newly imposed tax might have a negative effect on investor’s appetite in the residential segment at a time where investors are still cautious and market activity is already low.

Emaar MGF Land raises INR2.5 Billion by selling bonds

Emaar MGF Land, the joint venture between Emaar and India’s MGF Development Ltd. raised INR2.5bn by selling bonds. The company sold 4 year bonds at a yield of 16.50% at par, payable quarterly. The funds will be used for general corporate purposes and for development of two residential projects. This is a positive sign that the appetite for Dubai credit has returned.


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