Half of Dubai’s property projects scrapped

Dubai’s government has cancelled almost half the emirate’s property projects as it grapples with mounting oversupply and a debt crisis, according to a new bond prospectus.

The document, released on Monday as Dubai seeks to raise $1bn this week, provides a window on the emirate’s state finances.

The prospectus said the real estate regulator has cancelled, or is cancelling, 495 projects – about half of all developments planned in the emirate – amid fears that market demand would have been unable to cope.

“Since the middle of 2008 a number of real estate projects in Dubai have been cancelled or delayed, principally reflecting liquidity shortages for developers, decreasing headline real estate prices and rental rates and increasing market uncertainty and negative sentiment,” said the prospectus.

The 58-page document provides some insight into government policy as the emirate seeks to build on rising confidence brought on by the near-final resolution of the $23.5bn restructuring of Dubai World, its troubled conglomerate.

Government revenues fell 13 per cent in 2009, largely because of the lower collection of fees. But the prospectus said this had been partially offset by other sources, notably a 47.6 per cent increase in police fines and rising revenues from road tolls and airport passengers. The emirate expects to post a Dh6bn ($1.6bn) deficit this year.

Its debt has risen since it last tapped the markets in 2009 and subsequently made a shock request for a standstill on Dubai World’s debt obligations.

The prospectus puts the debts of Dubai’s government and state-owned companies at Dh105.5bn at the end of July, up from Dh71.3bn at the end of September last year.

This increase is partially accounted for by funds drawn from a $10bn bail-out facility issued last December by the government of Abu Dhabi to help recapitalise Dubai World.

The Dubai government declines to give a separate figure for the debts of state-related entities, where much of the city’s estimated $110bn debt pile lies.

Dubai has agreed a Dh3.7bn facility, maturing in 2017, with China Construction Bank, which has applied to open a branch in the city. The previously undisclosed deal surprised some bankers but reflects rising Chinese interest in the emirate.

The government last year borrowed $635m from a consortium of banks and this year also took a Dh1bn facility from Dubai Islamic Bank. These two facilities have 12-month payment moratoriums.

HSBC, Deutsche Bank and Standard Chartered are managing the bond issue, which on Monday saw initial yield indications of 6.875 per cent for the five-year tranche and 8 per cent for the 10-year.