Bloomberg News

Nakheel to Start Its First Home Project on Palm Since 2008

February 24, 2012

(Adds Nakheel bonds in ninth paragraph.)

Feb. 23 (Bloomberg) -- Nakheel PJSC, the Dubai developer bailed out by the government in 2009, will start selling townhouses on Palm Jumeirah next month in its first new residential project since the property market crashed in 2008, Chairman Ali Rashed Lootah said.

The state-controlled company will develop mid-range homes on its Palm Jumeirah artificial island, alongside the apartments and villas already built there. Nakheel, Dubai’s biggest developer by assets, announced a plan to construct 102 townhouses on the island in September.

“Not everyone wants a villa or an apartment,” Lootah said in an interview at his office in Dubai. “There’s demand for townhouses on the beach, but we’re being careful not to increase the density on the palm.”

The Palm Residence project will test demand for property in a market where prices have plunged by more than 65 percent since their mid-2008 peak. The slump forced Nakheel to write down the value of its real estate by 78.6 billion dirhams ($21 billion) and prompted the bailout.

Most of the Palm project will be financed by sales agreed before construction begins, a method that was common before the property slump. Lootah, who declined to comment on the expected cost of the development, said it won’t be financed through bonds or loans from international banks.

Stalled Projects

Nakheel plans to spend 1.4 billion dirhams this year to complete nine projects across Dubai that had been suspended after the property crash, according to an Islamic bond prospectus obtained by Bloomberg News in September. Nakheel plans to complete 7,982 homes in 2012, the document showed.

“My main challenge is to deliver to buyers the homes they bought,” Lootah said. “The banks and the contractors made a lot of money off us during the boom days, but the buyers have been patient and we want to deliver the homes they paid for and dreamed of. That’s my main goal.”

Nakheel settled 6.6 billion dirhams of claims related to property sold in projects that were halted indefinitely, Lootah said. The buyers have been offered alternative homes in projects nearing completion or credit notes that can be redeemed in five years. Nakheel has about 3.4 billion dirhams of claims left to settle, he said.

The yield on Nakheel’s 3.8 billion-dirham, 10 percent sukuk maturing in August 2016 has fallen 153 basis points, or 1.53 percent of a percentage point, this year to 16.777 percent, according to data compiled by Bloomberg.

Revenue from retail will probably double by 2014, lifted by an additional 3 million square feet (278,709 square meters) of space, Lootah said. The company reported revenue of 1.5 billion dirhams for the first half and is due to release 2011 results in March.

International Unit Revival

Limitless LLC, the international property developer put under Nakheel’s management in July 2010, has almost restructured a $1.2 billion loan, Lootah said. The company, which halted projects across the world following the crisis, plans to resume work on developments in Moscow and Saudi Arabia, where housing demand is highest, Lootah said.

Before the crisis hit, Limitless was developing Khimki, a villa and low-rise apartment project on 114 hectares (1.14 million square meters) to house 14,000 people alongside the Moscow River Canal. The company’s Al Wasl project in the Saudi Arabian capital, Riyadh, was designed to include more than 50,000 homes as well as offices and retail space on 1,400 hectares, according to the company’s website.

--Editors: Andrew Blackman, Ross Larsen.

To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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