Sunday, December 13, 2009

Will Nakheel Survive?

I never thought I would be writing a post with this title but times have changed...in a BIG way. One of the largest and greatest real estate developers in world history, and my favorite Gulf developer, Nakheel, is in trouble. Big trouble! The following, taken from an article at Zawya.com entitled 'Creditors face reality of a bare cupboard' sums up Nakheel's woes:

Referring to Nakheel the article states--

'The prickling of the real estate bubble has put the company (Nakheel) under severe financial distress throughout the year, forcing it to make fire sales and slash staff to keep its head above water. Some buildings in low income projects, Discovery Gardens and International City have been sold to other parts of the Dubai Government, according to CB Richard Ellis, a real estate service provider.

'The company has land available for sale but there are still few takers given Dubai's property supply glut. And much of the company's undeveloped land is part of the projects that have taken down-payments from customers, so is a liability. "Elsewhere there isn't much left in the cupboard," says Nicholas Mclean, regional managing director of CB Richard Ellis.

'Cash flow has dried to a trickle, with the company's incoming cash flow barely enough to cover salaries and electricity bills, say two former employees.

'Contractors are owed as much as Dh11bn, the former employees say, even after some suppliers decided to take 75 cents on the dollar earlier this year as the government disbursed bail-out funds to the developer. "I was told 'take the haircut and sign non-disclosure forms, or go to the back of the queue'," said one consultant. "Luckily I took the money."

'Nakheel has also been encouraging customers on projects far away from completion to shift to developments that are finished or approaching handover. Buyers of expensive villas on the Palm Jebel Ali, which was to be the developer's second luxurious Palm Island, and is now permanently delayed, are being offered studio flats in lesser developments as compensation.'

Now you can see just how bad things have gotten for Nakheel. And there is more. Nakheel's gigantic Dubai Waterfront project, which was to be twice the size of Hong Kong, looks like it will not even be a fraction of the original planned size, if it ever gets developed at all. Furthermore, the third Palm Island, Palm Deira, justs sits there with no development taking place. In my opinion it will take at least 10 to 15 years before Palm Jebel Ali and Palm Deira are ever developed, and it is even possible that they will never be developed.

Dubai has been hit with one of the worst real estate disasters that I have ever seen. As of this writing the residential real estate market in Dubai, which has already fallen about 50%, continues to fall faster than any other location on the planet. In addition, 40% of Dubai office space is empty. And Dubai is building MORE residential units and MORE office space!

I hope Nakheel is able to survive in some form. They have built some of the most iconic and spectacular Mega Projects in world history. Projects that have put Dubai on the front page all over the world. A company this great should never be allowed to go under!

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