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Dubai World troubles threaten Palm Jumeirah project
Levent Hassan knows all about the financial challenges facing Dubai.
Mr. Hassan is a real estate agent who buys and sells properties on Palm Jumeirah, the man-made, palm-tree-shaped island where celebrities like David Beckham and Brad Pitt have bought luxury homes.
When villas on the island first went up for sale in 2002 they were snapped up and prices for some soared well above $10-million (U.S.).
Not any more.
“In some places, prices have been reduced by at least 50 per cent or 60 per cent and in some places more,” Mr. Hassan said Thursday from Dubai.
Things had been picking up in the last couple of months, but news of financial problems at Dubai World, which owns the developer of Palm Jumeirah, could put the project in peril.
The developer, called Nakheel, has $3.5-billion worth of debt coming due next month and some analysts question whether it will be able to meet the commitment.
The problems at Nakheel have forced Dubai World, a holding company with dozens of international investments, to seek a standstill agreement from creditors who are owed roughly $60-billion.
For months, analysts have watched as the recession hit Dubai, one of the seven emirates that make up the United Arab Emirates.
There have long been fears the glitzy city-state overextended itself with a wave of gigantic projects, many of which have now been stopped in mid-construction.
Perhaps nothing epitomizes Dubai's excess like Palm Jumeirah.
When construction began in 2001, the project was the largest land reclamation venture ever, involving close to 100 million cubic metres of sand and seven million tonnes of rock.
The development was supposed to be finished in 2005 but it is still not done. When it is complete, about two million people will live on the island's 16 palm fronds and along the 11-kilometre surrounding crescent.
Nakheel is working on two other palm-tree-shaped islands nearby and another island project shaped like the globe.
Some villas on Palm Jumeirah include two swimming pools, and penthouse apartments cover up to 14,000 square feet. There are also plans for 220 high-end shops and several luxury hotels, including the five-star Ottoman Palace by Rixos, which will feature the world's largest Turkish bath.
Last year, the island saw the opening of the $1.5-billion Atlantis resort, with 1,500 rooms and a giant shark tank. The opening celebrations cost $20-million.
By early 2009, the project started running into difficulty. After years of soaring house prices and eager buyers, the market cooled.
In February, PowerHouse Properties, a local company that tracks the Dubai real estate market, said prices on Palm Jumeirah had dropped by half or more in six months.
Four bedroom homes that went for $4-million could be had for $1.6-million, the company said.
Prices have fallen further since, and distressed listings have escalated.
The owner of an 1,800-square-foot, two-bedroom apartment recently almost begged for a buyer –“distressed sale, very urgent” – offering the unit for $400,000.
Mr. Hassan hopes the problems at Dubai World won't have an impact on buyers. “People need to sell and people need to rent,” he said. Dubai World's problems “are not going to stop that.”
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