Monday, September 22, 2008

Credit Crunch in the US will impact property sectors in Gulf

The current credit crunch being witnessed in the US, with Lehman Brothers Holdings Inc being the latest victim, is sure to have its impact across property markets across the world, particularly with banks getting more cautious to lend, commented the Chief Executive of a top real estate company in Abu Dhabi last week.

Ronald Barrot, the Chief Executive of Aldar Properties, when speaking to the media, revealed that "The ongoing crisis will influence the climate of property markets across the world. It will impact the margins and conditions for lending, and banks will get more cautious on matters associated with lending."

Property companies in the Gulf are currently enjoying an economic boom due to high oil prices that have been untouched by the global credit crunch. However, a reluctance by banks to lend in the region could hinder $2.3tn infrastructure, and thereby, real estate investments across the region.

According to Barrot, despite the probability of stringent lending criteria, Aldar would continue with its plans as usual, as the company is confident of being able to maintain business inline with their plans. However, smaller companies may face problems, Barrot said.

Aldar is eyeing real estate opportunities in the US and European sectors during the current situation of global economic recession.

Barrott said that it is too early to predict the impact that the collapse of Lehman Brothers would have on real estate market in the UAE, but "confidence levels were key."

"Markets in the region are amongst the most robust, and will continue to be interesting for people willing to invest. Our market is more insulated from the slowdown than others," said Barrot.

However, a few analysts warn that increasing borrowing costs and tightening liquidity could dampen the developer investment and buyer interest in the UAE. This advance perception of risk will limit the ability of raising funds by the Bank, and will dampen their ability to finance future real estate investment and mortgages. Higher mortgage cost may also slow buyer demand, said Robert McKinnon, a real estate analyst, who is also the Head of Equity Research at Al Mal Capital.

Property shares in the UAE have declined considerably with fears of economic slowdown gripping the region, and the numbers of police probes in real estate companies are growing.

No comments: