Dubai Boom Spurs U-Turn by Kuwaiti Developer: Arab Credit

Kuwait-based property developer Al Mazaya Holding Co. is reversing its strategy of shrinking activities in Dubai and may raise money from the sale of Islamic bonds after real-estate prices soared.

The company’s previous management said in June 2012 it would reduce its investments in Dubai. At the end of 2013, the value of the company’s assets in the United Arab Emirates had fallen to 32 percent of the total, from 35 percent a year earlier, according to the company’s financial statements.

“A few years ago the view was different, now I believe there’s great potential in Dubai,” Ibrahim Al Saqabi, Al Mazaya’s chief executive officer, said yesterday in an interview in Dubai. “We’ll launch several new projects this year, including some in Dubai.”

Property prices in Dubai rose as much as 43 percent last year, according to Cluttons LLC data on Bloomberg, as the economy rebounded from a credit crunch. The surge enabled Nakheel PJSC to start repaying debt ahead of schedule and helped Damac Real Estate Development Ltd. sell a $650 million sukuk earlier this month.

Dubai’s real estate rally has helped lower the borrowing costs of developers including Emaar Properties PJSC and Nakheel. The yield on Emaar’s Islamic debt maturing in July 2019 was at 3.75 percent at 4:41 p.m. in Dubai, compared with 4.54 percent at the end of last year. The yield on Nakheel’s notes due August 2016 has fallen 127 basis points to 5.36 percent. The yield on Middle East sukuk has declined 33 basis points on average, according to JPMorgan Chase & Co. indexes.

Real Demand

“Issuing sukuk is an option that we’ll be exploring this year,” said Al Saqabi. “Availability of liquidity isn’t an issue for us. If we do a sukuk it’ll be for the diversification of our funding sources and to put us in contact with new potential investors.”

The company said in November increasingly favors Shariah-compliant financing over conventional loans. Islamic debt accounted for as much as half the company’s total, it said at the time.

Al Mazaya is also starting new projects in Bahrain and Oman this year, and is currently studying the potential to begin its first project in Turkey.

Demand for properties in Dubai is increasingly coming from people who live and work in the emirate rather than financial investors, said Al Saqabi. The emirate had one of the worst real-estate crashes during the financial crisis as speculators fled in 2008.

More Regulation

“The market is much more regulated now, the financing of property is much more regulated and the demand is real,” said Al Saqabi. Al Mazaya has invested 6 billion dirhams ($1.63 billion) in the Dubai real estate market so far, according to Al Saqabi, who became CEO in April 2013.

Dubai has been taking steps to limit the buying and selling of incomplete properties, known as flipping, that was blamed for playing a major part in the 2008 crash. Prices fell by as much as 65 percent when the emirate’s real estate bubble burst. The Land Department raised the transaction fee to 4 percent from 2 percent last year, and the United Arab Emirates Central Bank imposed restrictions on the value of mortgages made available to foreign buyers to try and cool the market.

The measures may already be starting to take effect, which could limit the upside for Mazaya. “There are some indications that although prices are still going up, they are rising less aggressively than this time last year,” Sanyalak Manibhandu, manager of research at NBAD Securities said by telephone yesterday. “There will be a further slowdown if you have more additions of supply.”

Smaller real estate developers including Deyaar and Union Properties have started new projects to try and benefit from Dubai’s property rebound.

“As these smaller developers come back with new projects, my question is, can they realize them in the next 3 years to 5 years before the market turns again?” said Manibhandu.

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