Description
property prices boomed in Dubai and reasons of real estate crisis in 2009. It also gives the impact of the crisis and compares with sub prime crisis in US in 2008.
The Dubai Crisis
CONTENTS
The Boom Period
Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Dubai’s Economy
• One of the most unique and unusual economies of the world • Dubai has numerous free zones including Jebel Ali free zone, Dubai
Maritime City, Dubai Internet City, and Dubai Media City.
• Dubai’s Natural Gas Revenue: 2% of UAE’s Revenues • Dubai’s Oil Production: 24000 Barrels/Day • Economy initially built on Oil Money, but reserves have diminished fast and are expected to be exhausted in 20 years • Dubai became an apt symbol of recent over-extension of Capitalism
The Pace of Growth
• Growth based on diversification from trade-based, Oil-reliant to Service & Tourism oriented Economy giving boom to the Real Estate / Property Sector. • The Large scale Real Estate Development Projects led to Construction of some of the tallest Skyscrapers including Emirates Towers, Burj Al Arab & Burj Dubai. • Business Climate: Open and transparent market, Pro-business government policies, Free zone establishment, 100% foreign ownership, no import duties
Sectored Composition of GDP of Dubai
Dubai – Business Climate
• • • • • • Open, transparent market English is widely spoken Full range of banking and business services First class infrastructure Pro-business government policies Free zone establishment – 100% foreign ownership – no import duties • UAE is a member of the WTO
Free-Zone Incentives
• 100 per cent foreign ownership
• Exemption on all import and re-export duties
• 100 per cent repatriation of capital and profits • Freedom from corporate taxation for 50 years with an option to renew.
• An abundant and inexpensive energy supply
Dubai Free Zones
• Knowledge Village Dubai Business Bay
• Dubai Multi Commodities Centre Dubai Healthcare City
• Gold & Diamond Park Dubai International City • Dubai Media City Dubai Flower Centre • Dubai Internet City Dubai Investment Park • Dubai Cars & Automotive Zone Dubai Aid City • Dubai Airport Free Zone Dubai Int’l Financial Centre • Jebel Ali Free Zone Dubai Financial Market
Forthcoming Dubai Free Zones
• • • • • • • • • • • Dubai Auto Parts City Free Zone (DAPC) Dubai Biotechnology and Research Dubai Carpet Zone Dubai International Arbitration Centre (DIAC) Dubai Maritime City (DMC) Dubai Outsource Zone (DOZ) Dubai Silicon Oasis (DSO) Dubai Textile City (DTC) Mohammed bin Rashid Technology Park The Heavy Equipment & Trucks Free Zone The International Media Production Zone
Tourism Development
• 6.16 million visitors in 2005
• Target 15 million visitors in 2010
• 70 hotels in 1990 • 290 hotels & 130 hotel apartments in 2005 • Project to add another 100,000 hotel rooms by 2010 • Average occupancy 95% • Average length of stay: 2.8 days • 15.2 million guest nights
Growth strategy directions
Source: McKinsey’s Quaterly,April-2007
12
What is Dubai World?
• Dubai World : Investment company that manages and supervises a
portfolio of businesses and projects for the Dubai
• Promote Dubai as a hub for Commerce and Trading. • Dubai World was established under a decree ratified on 2 March 2006 by the Ruler of Dubai • Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc and luxury retailer
Barneys New York through asset-management firm Istithmar PJSC.
Dubai Master Plan 2015
Dubai by Google Earth 19th October
Dubai- Opportunities
15
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
What is Dubai Crisis?
• The Dubai Debt Crisis 2009 has been called by economists a consequence of Real Estate Bubble burst. • On November 26, 2009 Dubai proposed to delay repayment of its debt which includes delay in the payment of $60 Billion debt on Dubai World • Not a big amount to have a big impact on the world economy. • Since all those loans have been guaranteed by Dubai Government, Dubai Government has requested the lenders to extend time for redemption.
Impact of the Global Financial Crisis
• The Global Crisis, which began with a decline in the Real Estate values in the US had its effect. • Dubai’s fall began with the Outflow of Capital, as Investors anticipated adverse impact of the global crisis on emerging markets as well. • The Collapse of Real Estate & Construction was swift. • Property Prices in Dubai fell by as much as 50% just in few months of the Crisis. This is the highest fall in the world (Knight Frank Global House Price Index). • About 40% of Office Space empty. (Bloomberg) • Many Projects put on hold or abandoned due to lack of easy Finance & grim future prospects. • Nakheel, part of Dubai World, alone put Projects worth US$ 108 billion on hold.
The Burst of the Bubble
• Dubai borrowed $80 billion in a four-year construction boom • The world’s steepest property slump in the global recession, with prices dropping 50 percent from their 2008 peak. • Dubai world with $59 billion of liabilities, sought a “standstill” agreement from creditors. • Dubai shifted into crisis mode with its building boom stalled, its lending bonanza vanished
Announcement of Official Moratorium
• On November 25, 2009, the Dubai government announced that the company "intends to ask all providers of financing to Dubai World and its subsidiary Nakheel to ‘Standstill' and extend maturities until at least 30 May 2010". • The company will undergo a restructuring process with the help of Deloitte consultants. • Several months earlier, Dubai World accounted for a $59-billion debt, nearly three-quarters of the emirate's US$80-billion debt. This includes a US$3.5-billion loan which the company is unable to repay by its December deadline.
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Impact of Dubai World’s Announcement
• In case of Default, it would be the largest after the Argentine Debt Crisis of
US$ 100 billion in 2001.
• Standard & Poor’s (S&P) downgraded six Dubai Government related Entities.
• Dow Jones Industrial Average fell 155 points or by 1.5%.
• European Stocks went down. • Dubai’s Stock market had a continued drop.
Overseas Banks With the Biggest Exposure to the Emirates
Source: The Economist
Impact on European Banks
• British banks at most risk if Dubai World can't pay its bills.
• HSBC Holdings and Standard Chartered could face losses of $611 million
and $177 million respectively, according to early estimates from analysts at Goldman Sachs.
• UK banks have the largest exposure to the UAE at USD50bn (around 2% of
UK GDP) • European banks collectively at USD88bn
• European banks’ exposure to Dubai World estimated at 5% of their total
estimated losses by end-2010
Impact on Korea , Japan & US
• South Korea’s financial institutions have just $88 million in exposure. • The impact on the Korean market of Dubai World’s announcement of a debt moratorium (estimated based on CDS premium) seems to be 0.1x that of the Lehman Brothers collapse • Construction firms from Japan, Australia behind Dubai's recent development boom also might be on the hook. • Japan's Sumitomo Mitsui Financial Group, the country's No. 3 bank, could be exposed to Dubai World's indebted property arm at the cost of several hundred million dollars. • Among U.S. banks, Citigroup Inc. had $1.9 billion in exposure to the United Arab Emirates as of 2008, according to a JPMorgan research note. But it's unclear how much of that was related to Dubai.
Impact on Stock Markets
• The Nikkei 225 Stock Average index dropped 4.38% for the week ended Friday, 27 November 2009. • In Mainland China, share market stumbled with all ten sectors tilted into red terrain, hit by concerns over Dubai’s financials health. • The Shanghai Composite Index slumped 74.71 points, or 2.36%, to 3,096.26 • In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses . • The BSE 30-share Sensex was down 222.92 points or 1.32% to 16,632.01 • The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC40 index lost 0.1% or 4.10 points to 3,675.
Impact on India
• Real estate sector and Banking sector have some exposure there, though not big enough to have much impact. • In case Indians who are working there, lose their jobs, then Indian job market may feel pressure. • UAE is big importer of Indian items • Economists call Kerala a ‘Money Order Economy’, precisely for the reason that every third house in Kerala has a person working in the Gulf. • Dubai’s debt woes have got Bollywood producers and distributors worried as the city is a significant contributor in the West Asian market for Hindi films.
Exposures of Indian Banks
Source: FICCI,India
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Lehman Collapse Time Causes Sep 08 Withdrawal of investment and advance of investment due to concerns over losses USD 600 bn(Market estimate during the time)
Dubai Crisis Nov 09 Concerns that financial jitters caused by Dubai Worlds Debt Moratorium USD 8 bn(20% of European Banks’ exposure to Dubai worth USD 40 bn was assumed as losses) In respite after short term shock, Risky assets in emerging markets and credit market saw their volatility increase in short term Excessive investment in severe industries backfired, Dubai crisis expected to serve as catalyst for restructuring of heavily indebted companies in Middle East and emerging markets
Losses
Aftermath
Financial market deteriorated severly, Subprime mortgage crisis began to develop into global financial crisis, Evidence by AIG bailout and BOA’s takeover of Merrill Lynch Lehman collapse triggered paralysis of global financial system; Global economy slipped into deeper recession after Lehman collapse
Implications
Reasons for low impact
• Analysts expect financial support from Abu Dhabi, home to most of the Emirates' oil. • Abu Dhabi (the senior and controlling Emirate in the UAE) to help soften the blow of this crisis. • A recent report by HSBC confirms that Abu Dhabi has the cash liquidity to support its own banks and property companies. • • Quick Efforts made for restructuring the debt Regional Crisis as compared to Lehman Brothers
•
European banks’ exposure to Dubai World estimated at 5% of their total estimated
losses by end-2010 and corresponds to 8% of Eastern Europe exposure
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Major Causes of the Crisis
• Weak Regulatory Framework.
• Liquidity Squeeze / Capital Outflows.
• Global Real Estate Crash. • Aviation & Tourism slump. • Lower volumes of World Trade. • Speculation & Greed. • Lack of Transparency & Governance.
Regulatory Framework
• During the early boom, there was a complete lack of Regulatory Framework. • Such a loose control led to uncontrolled growth of the Real Estate Property sector & allowed even smaller players to enter into the market. • Lack of Regulations coupled with Greed allowed even very low Income earning segment to invest into the Property market. • Incentives like Residence Visa also brought Non-residents into the market (with no clarity). • Government established the Real Estate Regulatory Authority (RERA) in July 2007 (almost peak in the sector), when almost all the major players and projects were launched and people & Banks had invested significant amount of money into this sector.
Thank You!!
doc_748182190.pptx
property prices boomed in Dubai and reasons of real estate crisis in 2009. It also gives the impact of the crisis and compares with sub prime crisis in US in 2008.
The Dubai Crisis
CONTENTS
The Boom Period
Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Dubai’s Economy
• One of the most unique and unusual economies of the world • Dubai has numerous free zones including Jebel Ali free zone, Dubai
Maritime City, Dubai Internet City, and Dubai Media City.
• Dubai’s Natural Gas Revenue: 2% of UAE’s Revenues • Dubai’s Oil Production: 24000 Barrels/Day • Economy initially built on Oil Money, but reserves have diminished fast and are expected to be exhausted in 20 years • Dubai became an apt symbol of recent over-extension of Capitalism
The Pace of Growth
• Growth based on diversification from trade-based, Oil-reliant to Service & Tourism oriented Economy giving boom to the Real Estate / Property Sector. • The Large scale Real Estate Development Projects led to Construction of some of the tallest Skyscrapers including Emirates Towers, Burj Al Arab & Burj Dubai. • Business Climate: Open and transparent market, Pro-business government policies, Free zone establishment, 100% foreign ownership, no import duties
Sectored Composition of GDP of Dubai
Dubai – Business Climate
• • • • • • Open, transparent market English is widely spoken Full range of banking and business services First class infrastructure Pro-business government policies Free zone establishment – 100% foreign ownership – no import duties • UAE is a member of the WTO
Free-Zone Incentives
• 100 per cent foreign ownership
• Exemption on all import and re-export duties
• 100 per cent repatriation of capital and profits • Freedom from corporate taxation for 50 years with an option to renew.
• An abundant and inexpensive energy supply
Dubai Free Zones
• Knowledge Village Dubai Business Bay
• Dubai Multi Commodities Centre Dubai Healthcare City
• Gold & Diamond Park Dubai International City • Dubai Media City Dubai Flower Centre • Dubai Internet City Dubai Investment Park • Dubai Cars & Automotive Zone Dubai Aid City • Dubai Airport Free Zone Dubai Int’l Financial Centre • Jebel Ali Free Zone Dubai Financial Market
Forthcoming Dubai Free Zones
• • • • • • • • • • • Dubai Auto Parts City Free Zone (DAPC) Dubai Biotechnology and Research Dubai Carpet Zone Dubai International Arbitration Centre (DIAC) Dubai Maritime City (DMC) Dubai Outsource Zone (DOZ) Dubai Silicon Oasis (DSO) Dubai Textile City (DTC) Mohammed bin Rashid Technology Park The Heavy Equipment & Trucks Free Zone The International Media Production Zone
Tourism Development
• 6.16 million visitors in 2005
• Target 15 million visitors in 2010
• 70 hotels in 1990 • 290 hotels & 130 hotel apartments in 2005 • Project to add another 100,000 hotel rooms by 2010 • Average occupancy 95% • Average length of stay: 2.8 days • 15.2 million guest nights
Growth strategy directions
Source: McKinsey’s Quaterly,April-2007
12
What is Dubai World?
• Dubai World : Investment company that manages and supervises a
portfolio of businesses and projects for the Dubai
• Promote Dubai as a hub for Commerce and Trading. • Dubai World was established under a decree ratified on 2 March 2006 by the Ruler of Dubai • Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc and luxury retailer
Barneys New York through asset-management firm Istithmar PJSC.
Dubai Master Plan 2015
Dubai by Google Earth 19th October
Dubai- Opportunities
15
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
What is Dubai Crisis?
• The Dubai Debt Crisis 2009 has been called by economists a consequence of Real Estate Bubble burst. • On November 26, 2009 Dubai proposed to delay repayment of its debt which includes delay in the payment of $60 Billion debt on Dubai World • Not a big amount to have a big impact on the world economy. • Since all those loans have been guaranteed by Dubai Government, Dubai Government has requested the lenders to extend time for redemption.
Impact of the Global Financial Crisis
• The Global Crisis, which began with a decline in the Real Estate values in the US had its effect. • Dubai’s fall began with the Outflow of Capital, as Investors anticipated adverse impact of the global crisis on emerging markets as well. • The Collapse of Real Estate & Construction was swift. • Property Prices in Dubai fell by as much as 50% just in few months of the Crisis. This is the highest fall in the world (Knight Frank Global House Price Index). • About 40% of Office Space empty. (Bloomberg) • Many Projects put on hold or abandoned due to lack of easy Finance & grim future prospects. • Nakheel, part of Dubai World, alone put Projects worth US$ 108 billion on hold.
The Burst of the Bubble
• Dubai borrowed $80 billion in a four-year construction boom • The world’s steepest property slump in the global recession, with prices dropping 50 percent from their 2008 peak. • Dubai world with $59 billion of liabilities, sought a “standstill” agreement from creditors. • Dubai shifted into crisis mode with its building boom stalled, its lending bonanza vanished
Announcement of Official Moratorium
• On November 25, 2009, the Dubai government announced that the company "intends to ask all providers of financing to Dubai World and its subsidiary Nakheel to ‘Standstill' and extend maturities until at least 30 May 2010". • The company will undergo a restructuring process with the help of Deloitte consultants. • Several months earlier, Dubai World accounted for a $59-billion debt, nearly three-quarters of the emirate's US$80-billion debt. This includes a US$3.5-billion loan which the company is unable to repay by its December deadline.
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Impact of Dubai World’s Announcement
• In case of Default, it would be the largest after the Argentine Debt Crisis of
US$ 100 billion in 2001.
• Standard & Poor’s (S&P) downgraded six Dubai Government related Entities.
• Dow Jones Industrial Average fell 155 points or by 1.5%.
• European Stocks went down. • Dubai’s Stock market had a continued drop.
Overseas Banks With the Biggest Exposure to the Emirates
Source: The Economist
Impact on European Banks
• British banks at most risk if Dubai World can't pay its bills.
• HSBC Holdings and Standard Chartered could face losses of $611 million
and $177 million respectively, according to early estimates from analysts at Goldman Sachs.
• UK banks have the largest exposure to the UAE at USD50bn (around 2% of
UK GDP) • European banks collectively at USD88bn
• European banks’ exposure to Dubai World estimated at 5% of their total
estimated losses by end-2010
Impact on Korea , Japan & US
• South Korea’s financial institutions have just $88 million in exposure. • The impact on the Korean market of Dubai World’s announcement of a debt moratorium (estimated based on CDS premium) seems to be 0.1x that of the Lehman Brothers collapse • Construction firms from Japan, Australia behind Dubai's recent development boom also might be on the hook. • Japan's Sumitomo Mitsui Financial Group, the country's No. 3 bank, could be exposed to Dubai World's indebted property arm at the cost of several hundred million dollars. • Among U.S. banks, Citigroup Inc. had $1.9 billion in exposure to the United Arab Emirates as of 2008, according to a JPMorgan research note. But it's unclear how much of that was related to Dubai.
Impact on Stock Markets
• The Nikkei 225 Stock Average index dropped 4.38% for the week ended Friday, 27 November 2009. • In Mainland China, share market stumbled with all ten sectors tilted into red terrain, hit by concerns over Dubai’s financials health. • The Shanghai Composite Index slumped 74.71 points, or 2.36%, to 3,096.26 • In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses . • The BSE 30-share Sensex was down 222.92 points or 1.32% to 16,632.01 • The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC40 index lost 0.1% or 4.10 points to 3,675.
Impact on India
• Real estate sector and Banking sector have some exposure there, though not big enough to have much impact. • In case Indians who are working there, lose their jobs, then Indian job market may feel pressure. • UAE is big importer of Indian items • Economists call Kerala a ‘Money Order Economy’, precisely for the reason that every third house in Kerala has a person working in the Gulf. • Dubai’s debt woes have got Bollywood producers and distributors worried as the city is a significant contributor in the West Asian market for Hindi films.
Exposures of Indian Banks
Source: FICCI,India
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Lehman Collapse Time Causes Sep 08 Withdrawal of investment and advance of investment due to concerns over losses USD 600 bn(Market estimate during the time)
Dubai Crisis Nov 09 Concerns that financial jitters caused by Dubai Worlds Debt Moratorium USD 8 bn(20% of European Banks’ exposure to Dubai worth USD 40 bn was assumed as losses) In respite after short term shock, Risky assets in emerging markets and credit market saw their volatility increase in short term Excessive investment in severe industries backfired, Dubai crisis expected to serve as catalyst for restructuring of heavily indebted companies in Middle East and emerging markets
Losses
Aftermath
Financial market deteriorated severly, Subprime mortgage crisis began to develop into global financial crisis, Evidence by AIG bailout and BOA’s takeover of Merrill Lynch Lehman collapse triggered paralysis of global financial system; Global economy slipped into deeper recession after Lehman collapse
Implications
Reasons for low impact
• Analysts expect financial support from Abu Dhabi, home to most of the Emirates' oil. • Abu Dhabi (the senior and controlling Emirate in the UAE) to help soften the blow of this crisis. • A recent report by HSBC confirms that Abu Dhabi has the cash liquidity to support its own banks and property companies. • • Quick Efforts made for restructuring the debt Regional Crisis as compared to Lehman Brothers
•
European banks’ exposure to Dubai World estimated at 5% of their total estimated
losses by end-2010 and corresponds to 8% of Eastern Europe exposure
The Boom Period Real Estate Crisis in 2009 : Reasons Impact of the Crisis Comparison with Sub Prime Crisis Conclusion and Findings
Major Causes of the Crisis
• Weak Regulatory Framework.
• Liquidity Squeeze / Capital Outflows.
• Global Real Estate Crash. • Aviation & Tourism slump. • Lower volumes of World Trade. • Speculation & Greed. • Lack of Transparency & Governance.
Regulatory Framework
• During the early boom, there was a complete lack of Regulatory Framework. • Such a loose control led to uncontrolled growth of the Real Estate Property sector & allowed even smaller players to enter into the market. • Lack of Regulations coupled with Greed allowed even very low Income earning segment to invest into the Property market. • Incentives like Residence Visa also brought Non-residents into the market (with no clarity). • Government established the Real Estate Regulatory Authority (RERA) in July 2007 (almost peak in the sector), when almost all the major players and projects were launched and people & Banks had invested significant amount of money into this sector.
Thank You!!
doc_748182190.pptx