Nakheel is asking investors using credit transfers for property purchases to top up their payments with cash, as it seeks to raise funds ahead of a mid-December due date for a Dh3.5 billion (US$953 million) bond.According to brokers, the Dubai Government-controlled developer allows investors in delayed projects to sell their downpayments to other investors who have already invested in other Nakheel developments.But now the company is no longer allowing customers to use credit transfers alone to fund instalments, and is demanding that part of the payments are made in cash, brokers say.“For example, when a buyer has Dh1m to pay, Nakheel would say you need to pay 30 per cent in cash, which makes Dh300,000,” said one broker, Farid Ahmad Hussein. “They will accept a credit transfer of Dh700,000 from somebody else. The investor can get this Dh700,000 maybe at 40 per cent discount now in the market from another investor. In total he has saved Dh280,000.”
Nakheel needs to pay back a Dh3.5bn bond on December 14, in what is being seen by international lenders and rating agencies as a litmus test of the Dubai Government’s willingness to support its affiliated companies facing financial difficulties.So called “credit consolidations” were triggered by the collapse in property prices last autumn, which saw scores of developments either cancelled or delayed and effectively ended the “off-plan” property market.
Investors in stalled projects have been able to sell their downpayments, usually at a loss, to other customers of the same developer, and then those downpayments can be used on continuing projects. These credits can only be transferred between buyers that have already made downpayments and are not available on the secondary market.Developers facilitate the transfer of credit between investors in different projects to generate funds needed to complete some developments, while also making it easier for them to abandon others. External brokers help to match buyers.
Unlike other developers, Nakheel requires the transfer of ownership between investors to be completed before credit is moved between properties.“Investors in projects that have been deferred have the option of consolidation if they own other properties within the Nakheel portfolio. The advantage to the investor is that Nakheel is able to hand over property to the owner sooner than it might on a deferred project and help investors reduce their financial exposure,” Nakheel said in a statement. The developer declined to comment on whether cash payments were also required to complete property consolidations.
Nakheel has shortened the time it takes to complete such transactions to about a month, from three or four months previously, according to brokers.Nakheel, the developer of The Palm Dubai, has spent billions of dirhams on projects that are still under construction, while adding further offshore island developments including The World and The Universe.But development on such a massive scale has come at a high price for the company, which is now struggling to repay debts accumulated during the six-year building boom.
The trade in credit notes on stalled projects is helping revive activity in the property sector, according to Rajesh Sony, a director of Bluechip Real Estate. The firm, he said, generates 90 per cent of its turnover from matching buyers and sellers of credits.“This is a win-win situation between the developer and investors. If all the investors of one project transfer the money elsewhere, the developer may call off the project without having to refund the money to investors. At the same time, investors can get out of the market without losing all the money, and other investors in ongoing projects can pay their instalments at a cheaper rate,” he said.
The exchange of Nakheel credit, or consolidations, began in February on projects that include the Dh4.4bn Dubai Promenade, and the Dh2.9bn Trump Tower, the centrepiece of Dubai’s original Palm Island development, according to Mohammad Mujtaba Vakil, a broker from Linkage Real Estate.He said that while cash components were not requested on earlier transfers, Nakheel now “would not accept anything less than 30 per cent”.
Unlike other developers, Nakheel requires the transfer of ownership between investors to be completed before credit is moved between properties.“Investors in projects that have been deferred have the option of consolidation if they own other properties within the Nakheel portfolio. The advantage to the investor is that Nakheel is able to hand over property to the owner sooner than it might on a deferred project and help investors reduce their financial exposure,” Nakheel said in a statement. The developer declined to comment on whether cash payments were also required to complete property consolidations.
Nakheel has shortened the time it takes to complete such transactions to about a month, from three or four months previously, according to brokers.Nakheel, the developer of The Palm Dubai, has spent billions of dirhams on projects that are still under construction, while adding further offshore island developments including The World and The Universe.But development on such a massive scale has come at a high price for the company, which is now struggling to repay debts accumulated during the six-year building boom.
The trade in credit notes on stalled projects is helping revive activity in the property sector, according to Rajesh Sony, a director of Bluechip Real Estate. The firm, he said, generates 90 per cent of its turnover from matching buyers and sellers of credits.“This is a win-win situation between the developer and investors. If all the investors of one project transfer the money elsewhere, the developer may call off the project without having to refund the money to investors. At the same time, investors can get out of the market without losing all the money, and other investors in ongoing projects can pay their instalments at a cheaper rate,” he said.
The exchange of Nakheel credit, or consolidations, began in February on projects that include the Dh4.4bn Dubai Promenade, and the Dh2.9bn Trump Tower, the centrepiece of Dubai’s original Palm Island development, according to Mohammad Mujtaba Vakil, a broker from Linkage Real Estate.He said that while cash components were not requested on earlier transfers, Nakheel now “would not accept anything less than 30 per cent”.
Source: The National
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