$3.4bn Aldar Properties loss casts a shadow over UAE real estate
Posted on 09 February 2011 with 1 comment from readers
Aldar Properties has posted a $3.4 billion loss for 2010 after massive write-downs on its asset values. The leading Abu Dhabi property developer has $5.2 billion in projects under construction.
Last month Abu Dhabi Government came to the rescue of the otherwise insolvent company acquiring $3 billion in infrastructure on Yas Island, $1.5 billion of residential units and issuing a $760 million bond to a sovereign wealth fund.
Global financial crisis
Clearly Aldar is the biggest victim of the real estate crash that hit the emirates after the global financial crisis more than two years ago. Aldar started its major projects several years later than neighboring Dubai and thus had less cash in the bank than some of its Dubai rivals when the crisis struck and benchmarked project values too high.
With the benefit of hindsight we can now say that Aldar is building more property than the market can absorb. Excluding write downs the company lost $377 million last year on revenues of just $486 million.
All major global property crashes have similar tales of woe among their top developers. For example, in the UK in the early 90s it was the property developer Olympia & York’s Canary Wharf that went under. Aldar would have suffered the same fate without the largesse of Abu Dhabi.
Dubai’s Union Properties was also recently rescued by an 11th hour purchase of the Ritz-Carlton in the Dubai International Financial Centre by an unnamed buyer from Abu Dhabi.
Who is next?
However, always in these cases the spotlight then turns to ask who is next. With the Abu Dhabi Government in the driving seat Aldar has almost certainly made a clean breast of its financial problems. Indeed, if the UAE economic recovery is stronger than expected, thanks to higher oil prices, then the write offs may have been overdone.
But how many other developers will be forced to follow this lead and make huge write downs? And for how many will that process prove fatal? Will the governments of the emirates prop up all their many beleaguered developers?
It would be wrong, and potentially libelous to speculate on names in this context. But the Aldar loss is probably the start of a major shake-out in the property sector and not everybody is going to be a survivor. This is a sobering moment for the whole sector.
1 Comment posted by readers:
Things will start to change in the UAE once the government starts lowering the community fees for those living in Abu Dhabi and Dubai for those that purchased homes/apartments. Collecting 75K for rent and forking out 25K for community fees if you live in the JLT area or forking out $48K if you live in the Burj Khalifa area does not leave you with much return on your investment and they expect investors to return?
Buyers and investors will not return until many issues like this are resolved. I mentioned this before about the stock market as well in Dubai and sure enough until today it has not bounced back or rebounded while just about every other country on earth has. I spent a few days in Dubai this week and a few last week as I passed by. Nothing has changed and this does not take a genius to see. What I did see though was that most hotels were full but this is only due to the Egyptian crisis at the moment. Many people rerouted their flights and others picked other destinations which had better weather to spend a few days. Even Las Vegas sees a few busy days here and there but the city is still up the creek.