Property companies could have own bank

ABU DHABI // The Government, seeking to revive the slowing property sector, is working on a strategy to make money available to developers and home finance companies, developers and officials say. Among proposals being considered is the creation of a facility to fill the gap in lending left by banks to businesses. Many banks are issuing fewer such loans, despite the Government's recent decision to supply Dh120bn (US$32.6bn) in emergency funding to domestic lenders.

In the face of growing uncertainty in the economy, banks have become risk averse and largely used the government funds to restore deposits depleted by withdrawals by foreign investors. Moreover, not all the money has filtered into the banking system yet. Slowing sales and rising levels of default by buyers of off-plan properties have led to a sharp cut in cash flow for developers, prompting many to slow projects and lay off staff.

One plan being considered by the Government is to broaden the role of the Real Estate Bank, a company owned by the Department of Finance and Industry, said Mahmood al Mahmood, chief executive of Al Qudra Holding, one of Abu Dhabi's largest companies. "We have had this entity for years, but it has not taken a large role," Mr Mahmood said. "Today, we have an urgent need for it ... There are discussions to bring it on track to take part in financing some of the mortgage companies and real estate developers. It would extend facilities whenever needed."

Mr Mahmood said the idea emerged after meetings between government officials and company executives over the past several weeks. A key component of the discussions was to build a clear picture of the health of the property market, including whether buyers would be able to afford their homes and whether developers would be able to deliver their properties on schedule. "It has been a challenge," he said. "They are taking some time to really address the amount of receivables in the market ... The brainstorming session is not over yet. The thing about putting out a solution is you can't afford to miss."

Abdul Aziz Abdullah al Zaabi, general manager of the Real Estate Bank, was not available for comment. Real Estate Bank was set up in 1981 and made operational in 1999 as a lending institution for nationals and firms at least 80 per cent owned by UAE entities. Nasser al Shaikh, the director general of the Dubai Department of Finance, said yesterday that some state-controlled companies in Dubai would need government help to pay off their debts.

He added that a committee had been established to determine what the emirate needed to do to brace for the impact of the global financial crisis. "The purpose of the committee is to assess the impact of the global financial crisis on Dubai and what can be done in sectors including real estate and banking," he said, according to Reuters. "It will make recommendations to the Ruler on the way forward for crucial areas that have to be tackled to withstand future challenges."

In what was widely believed to be the beginning of consolidations in the property sector, Amlak and Tamweel, the two largest home finance companies, said they began merger talks last month. Of the Dh120bn in emergency funds pledged by the Government to local banks, Dh25bn has been directly injected and another Dh25bn is expected to be injected by the end of the week, followed by Dh20bn in the coming weeks.

The other Dh50bn is available but banks have not taken advantage of most of it because they say the terms are too stringent. John Tuke, the head of treasury and asset liability and management at Commercial Bank of Dubai, said banks were focusing on "trade-related" industries for lending. "We are, as a bank, not wanting to lend lots of money on the real estate side at the moment." "I think the banks will be focusing on small to medium-size enterprises and anything that's trade related rather than real estate or infrastructure or large-project type."

He added that it would make sense for the Government to assist property developers because it was a major shareholder in many of the companies that are central to development plans. Another senior banker in Abu Dhabi, who did not want to be named, said banks were using much of the emergency funds to close up "outstanding gaps" created by the withdrawal of speculative money. "This money which is coming in will initially help offset that deficiency," the banker said, adding that banks were keen to reduce exposure to the property sector because prices were easing.

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