Developers cannot afford mergers

A financing squeeze is expected to hinder plans for further consolidation in Dubai's property industry, experts say. There was widespread speculation at the start of the market downturn that the number of mergers would greatly increase to create more resilient entities. But while there has been consolidation between companies owned by the one parent, such as Dubai World's Nakheel and Limitless, few mergers of independent developers have occurred.

There have been some attempts to bring companies together. In preparation for a proposed merger with Emaar Properties, Dubai Holding's property units, Sama Dubai, Dubai Properties and Tatweer, were combined to form Dubai Properties Group. Talks between the new entity and Emaar began last summer but by the end of the year Emaar deemed the move was not commercially viable. The proposed merger between Amlak and Tamweel, the UAE's two largest mortgage providers, is also taking its time.

"The banks, whether they are local or international, have been extremely shy in granting financing, especially for this kind of transaction," said Nabil Ahmed, the regional head of research at Deutsche Bank. "Eighteen months ago we started to consider the Amlak and Tamweel merger ? but pretty much nothing has been completed at this time." The consolidations that have taken place within Dubai's two major conglomerates, Dubai World and Dubai Holding, were to "create synergies and rationalise rather than merge to grow", Mr Ahmed said.

The one GCC country where mergers between developers have been a success is Qatar. Immediately after the downturn hit the country's property sector at the end of 2008, sending residential prices in the capital Doha falling by as much as 40 per cent, the government ordered Qatar Real Estate Investment and Barwa Real Estate to join forces. The entity, which had a combined market capitalisation of Dh9.1 billion (US$2.47bn), now controls most of the development in Qatar making it the largest developer in the country.

While merger activity has been slow in the UAE, Blair Hagkull, the regional director of the property consultancy Jones Lang LaSalle, predicts it could pick up over the next six months. "It comes down to the fact that many real estate groups have had less than optimal funding for almost two years," Mr Hagkull said. "And it is also partly because people are realising that the slowdown is not a short-term problem."