Nakheel mega-projects won’t see light of day

By Shakir Husain  www.business.maktoob.com

DUBAI – Many of Dubai’s most ambitious mega-projects will likely never see the light of day despite billions of dollars the government plans to pump into struggling state-owned developer Nakheel, analysts told Maktoob News.

The Dubai government announced last month it would inject $8 billion into Nakheel to enable it to finish projects and pay contractors, part of a proposal to restructure $23.5 billion worth of debt linked to its parent Dubai World.

Analysts said the money will not be enough for Nakheel to revive stalled work on its mega-projects, including a 1 km high tower and palm-shaped island larger than Manhattan, with a recovery in the local real estate market looking remote.

“No developer at this moment is likely to launch anything significant and new because the demand and supply situation is not conducive for that,” said Matthew Green, head of research at CB Richard Ellis in Dubai.

Nakheel was hit hard by the financial crisis and subsequent collapse of Dubai’s real estate market, which saw property prices more than halve in value.

The crash forced the developer to put many of its projects on hold as financing and buyers dried up. Of its flagship projects only the Palm Jumeirah was ever completed.

Iconic buildings such as the Trump International Hotel and Tower and Nakheel Harbour and Tower were never built, while man-made island projects like the World, Dubai Waterfront and two more palm-shaped islands remain unfinished.

Green said the government’s cash injection will be used for “projects that have seen major levels of construction and infrastructure development like the Palm Jumeirah and Jumeirah Heights”.

Nakheel has yet to say which projects it will use the fresh funding to complete, only that projects have been prioritised on “construction progress, cost of completion, customer collections and market supply and demand”.

“We will have determined which projects are likely to remain longer-term towards the end of the recapitalisation process,” Nakheel said in a statement.

Saud Masud, head of research at UBS in Dubai, said the government cash injection will buy the company some time, but will not solve its long-term difficulties of a lack of end-user demand and project financing.

Currently one in four residential units is empty in Dubai, according to analyst estimates, and some 50,000 units are planned for delivery this year.

Meanwhile, banks are still reluctant to lend as their balance sheets remain stretched because of non-performing loans.

“Property down cycles may last five years or more and we are only one and a half years into the UAE down cycle,” said Masud, who forecasts property prices could fall a further 30 percent this year.

“If market conditions remain depressed, it will clearly put pressure on Nakheel to generate enough free cash flow to repay its obligations.”