Sorouh upbeat on the future

Chief executive says the global credit crunch could hurt developers in the UAE and is unsure if property stocks have reached a bottom.

Abu Dhabi- May 13, 2008-Model Alghadeer of Sorouh,  at the 2nd Annual Cityscape in Abu Dhabi May 13, 2008 in Abu Dhabi.   (Andre Forget / The National)
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Sorouh Real Estate, Abu Dhabi's second-largest property developer by market value, remains "extremely confident" about the short-term future of the industry, despite property share prices plummeting across the UAE in recent weeks.

However, that has not stopped it from considering possible impacts that the global credit crunch could have here in the coming months. "The challenges that the real estate industry is facing in the US are linked to the US subprime policy, and have no relation to Abu Dhabi's strong property fundamentals," said Mounir Haider, the chief executive of Sorouh. "The UAE economy is growing fast. People are coming in droves to work here, but witness the difficulties [they are having] in finding a place to live."

Mr Haider noted that specialists had forecast a shortage of 100,000 housing units in Abu Dhabi in the next decade. "We, as a developer, are very optimistic." However, he acknowledged the credit crunch could hurt developers in the UAE, and was unsure whether property stocks - which have fallen sharply in recent weeks - have plateaued. "No company lives in isolation. The credit crunch could definitely have an impact. When we look at the demand in Abu Dhabi we are optimistic, but if we were thinking of investing outside the UAE, we would have to consider these facts as well."

Sorouh has not launched any projects outside the emirates but is said to be studying opportunities in Morocco and Egypt. As fears of a global recession have intensified, authorities in Dubai have also stepped up their efforts to regulate the property market amid ongoing police investigations into corruption and the ensuing arrests at several banks, mortgage lenders and property companies. These include Dubai Islamic Bank, mortgage provider Tamweel, Dubai developer Deyaar, Sama Dubai and Istithmar World. On Sunday, the investment company Istithmar World, owned by the Government of Dubai, suspended its vice chairman, Adel al Shirawi, and chief financial officer Feras Kalthoum. Both are being held by Dubai Police as part of an investigation into alleged financial wrongdoing at Tamweel.

Tamweel said on Sept 9 that Abdullah Nasser Abdullah, its deputy chief executive, had become the latest senior official drawn into corruption investigations in the emirate, following his arrest. In a rare statement, the office of Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, warned last month that there would be "no tolerance" shown to anybody who tried to "exploit his position to make illegal profits".

"In any country when you have rules and an authority in place, it helps," Mr Haider said of corporate transparency. "And Abu Dhabi is on the right track of implementing those. The executive orders that were issued back in 2006 were the start of a long journey to establish transparency and encourage foreign investment in the sector." In Dubai, shares of Emaar Properties have fallen almost 50 per cent since the beginning of the year. In Abu Dhabi, Aldar Properties has slumped nearly 40 per cent while Sorouh has fallen almost 36 per cent.

"But we remain very confident that it will rebound because real estate in the UAE provides an added value that will be reflected in the share prices," Mr Haider said. Sorouh's third quarter profit growth was expected to equal or exceed its second quarter profit rise due to improved sales, he said. The company posted a record net profit of US$167.6 million (Dh616m) in the second quarter, up 39 per cent from the same period last year.

As for buying back shares, an option Emaar mentioned last week but has not yet implemented, Mr Haider said: "This has to be discussed at the board level." Sorouh would launch the third and final phase of its Dh11 billion Gate Towers on Al Reem Island during the Cityscape property exhibition in Dubai next month, he said, adding that the firm was developing projects worth more than Dh50bn. The company has raised $1.1bn among UAE banks through a securitisation sukuk in the last few weeks to be used for infrastructure development of its Shams Abu Dhabi and Saraya Abu Dhabi projects.

"We will be providing 7,000 to 10,000 units during the next three to five years," Mr Haider said. "Our first project delivery will be Golf Gardens Phase 1, by the end of this year, with nearly 400 villas."