Consolidation will shape Dubai real estate market

Moody's Investors Service said that the recently proposed consolidation of Dubai's two largest master real estate developers, Emaar Properties and the real estate activities of Dubai Holding Commercial Operations Group, would create a dominant entity in Dubai's property market that would control the market as well as benefit from economies of scale and stronger bargaining power vis a vis contractors.
"Moody's recognises that consolidating Emaar and DHCOG's real estate interests into one entity will create a new giant in Dubai's market, with unrivalled access to a sizeable land bank," explained Martin Kohlhase, a Moody’s associate analyst in Dubai and author of the report.
"Furthermore, several drivers — such as the opening of Dubai's Metro (public transportation system), the inauguration of Burj Dubai (the world's tallest skyscraper) and the end of the school year/beginning of the summer period — will shape Dubai's residential property market in the near term and lead to greater differentiation within Dubai's residential areas, from which Emaar and DHCOG's real estate divisions may benefit."
However, following the announcement of the merger, Moody's placed both Emaar's and DHCOG's long-term issuer ratings on review for possible downgrade on June 30.
"Larger government ownership in Emaar may not be sufficient to mitigate the detrimental impact that the merger would have on the company's fundamental creditworthiness," said Kohlhase. "Furthermore, ongoing market weakness and the prospects of weaker cash flow over the near to medium term will impact the combined group going forward."
Moreover, Moody's notes that the Dubai residential property market generally remains oversupplied, and the downward trend in the market is unlikely to stabilise before Q2 2010. Furthermore, large-scale lending has not resumed and property developers have recorded a number of buyer delinquencies.