x Abu Dhabi, UAEWednesday 26 July 2017

Sama in talks over signature project

Dubai developers are under strain in a more challenging financial climate, which analysts say will lead to more consolidations.

The Lagoons is a US$17.7bn (Dh65bn) project on seven artificial islands in the Dubai Creek.
The Lagoons is a US$17.7bn (Dh65bn) project on seven artificial islands in the Dubai Creek.

ABU DHABI // Sama Dubai, a government-owned property company, is discussing the transfer of development responsibilities for one of its signature projects to Emaar Properties, according to sources familiar with the talks. The move is a symptom of the strains in the Dubai property market as developers struggle to finish projects on time in a challenging financial climate, analysts said. Several Dubai property companies have also been affected by a fraud investigation that has left some without their top executives.

The Sama Dubai project under discussion is The Lagoons, a US$17.7 billion (Dh65bn) development on seven artificial islands in the Dubai Creek. The project covers 650 hectares and will include the Dubai Towers and the Dubai Opera House. A recent report by Sama said 95 per cent of the enabling works, including shaping the islands, was complete. Officials at Emaar would not confirm or deny that a deal was underway, but three senior sources within the two companies, who declined to be named because of the sensitivity of the discussions, said Emaar could take over the development of most of the project, except for the Dubai Towers. Emaar would also "inject cash to the project and assume an equity share", one source said, adding that "the details are still being worked out." Another source said a memorandum of understanding had already been signed.

A Sama public relations officer said he had no knowledge of a deal. Another Sama official said Emaar "is developing a large part of The Lagoons". However, the official said discussions were still under way, and it was possible no deal would be concluded or Emaar would take only a small role in developing The Lagoons. Sama Dubai has come under increased pressure since August, when it was revealed that four executives had been detained by the Dubai Public Prosecution on allegations of financial improprieties. One of those detained was Abdul Salam al Marri, the chief executive of The Lagoons. Mr Marri could not be reached for comment and it is not known whether the other executives are still being held.

The Dubai authorities have acknowledged the arrests were part of a wide-ranging corruption inquiry into companies with government interests. Among the companies under investigation are Nakheel, Dubai Islamic Bank, Deyaar Development, Istithmar World and Tamweel. Emaar Properties, the largest developer in Dubai with projects such as the Burj Dubai and the Dubai Marina, is owned by the Investment Corporation of Dubai, which is fully owned by the Government. Sama Dubai is owned by Dubai Holding Commercial Operations Group, owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

Analysts said they are expecting a wave of consolidation in the property sector. Robert McKinnon, the managing director of research at Al Mal Capital, said consolidations, especially among government-owned companies, would be fuelled by "execution risk". "The sector got very widespread and every entity was opening its own real estate group," he said. "When it came to execution, they realised that a lot of people were very new to the business and didn't have the ability to execute the project ... They are trying to put these projects under an umbrella with a management team that has proven it can execute."

Blair Hagkull, the managing director of the regional office of Jones Lang Lasalle, said consolidation was a natural progression for the maturing property market. "We expect, over the course of the next few years, greater consolidation throughout the real estate sector not only in the UAE, but in the Gulf," he said. "We recognise that as the market is fast maturing, and it is important to have real estate firms and development firms with the financial strength and track record to be able to deliver projects."

The process has already begun, to a small extent. Deyaar Development recently took over the entire property portfolio and future development plans of National Bonds Company, a savings scheme for Emirati citizens. National Bonds originally created its own group, National Properties, to be its development arm, but it effectively liquidated the group when it transferred its two developments, Skycourts and Flamingo Creek, to Deyaar and said the developer would handle its future projects.

Sama Dubai has indicated it may be focusing on international development in the future. Last week, the company announced it had received approval to build a US$25bn city in Tunisia called Mediterranean Gate. @Email:bhope@thenational.ae * Additional reporting by Angela Giuffrida