PERSIAN GULF: Financial crisis hits Dubai, Kuwait real estate

In yet another indication that the international financial crisis has arrived on the shores of the Persian Gulf, the largest mortgage lender in the United Arab Emirates, Amlak, will temporarily stop granting new home loans, according to media reports.

Experts say this is bad news for the UAE real estate market. As credits dwindle, the prices of real estate in this oil-rich emirate might further drop, and the whole economy might be negatively affected.

The UAE's English-language daily, the National, sounded the alarm, quoting Chris Dommett, chief executive of John Charcol Dubai, a mortgage advisory firm: 

“I think they don’t have funds to lend. It sends a very negative message to the market at a time when they need some sort of positive news.”

Property prices fell last month by 4% in Dubai and 5% in Abu Dhabi, according to data from HSBC Bank cited by the National.

The Dubai-based home lender said it was in the process of reconsidering its whole credit model before providing real estate buyers with loans again. The company’s chief executive, Arif Al-Harmi, told Bloomberg News:

"We are reviewing our existing credit policy to ensure optimum servicing of existing and prospective accounts. Our temporary measures of not sourcing new applications will bring us up to the level we have outlined in our management strategy at the beginning of the year.”

The global financial crunch continues to be a source of concern to governments in the Persian Gulf. Dubai has set up a committee to come up with recommendations to the real estate and banking sectors on how to deal with the current crisis, a government finance official told Reuters on Wednesday.

Nasser Shaikh, director general of the Dubai Department of Finance, said:

"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. It will make recommendations to the ruler on the way forward for critical areas that have to be tackled to withstand future challenges.”

In Kuwait, another oil-rich gulf country hit by the crisis, the government was reportedly planning to pump about $12 billion into the stock market in an attempt to stop shares from collapsing, the Wall Street Journal reported today.

The newspaper quoted Abdulmajeed Shatti, who sits on a government committee dealing with the financial crisis, as saying that the government was considering buying as much as 10% of the value of stocks traded on the Kuwait Stock Exchange (KSE).

The main index on the KSE has fallen almost 30% since the beginning of the year. Last week, small investors won a court order to close down temporarily the Kuwaiti stock market after complaining about huge losses incurred in the past weeks.

The stock market reopened again this week.

-- Raed Rafei in Beirut

Photo: Clouds emerge in the background behind construction sites on the Sheikh Zayed road in the Persian Gulf Emirate of Dubai in the United Arab Emirates. Credit: Ali Haider / European Pressphoto Agency