Dubai developer Nakheel is set to complete a $4.6 billion debt restructuring deal as the group behind landmarks such as the Palm Jumeirah accelerates its plans to exploit the growing demand for property in the Gulf emirate.
The government-owned group has negotiated with a group of lenders, including local banks Emirates NBD, Mashreq and Dubai Islamic Bank, according to people familiar with the matter. Negotiations are expected to refinance 11 billion UAE dirhams ($3 billion) of existing debt and raise 6 billion dirhams ($1.63 billion) to restart the development of Palm Jebel Ali, a beachfront project to the point of death.
Demand for coastal properties has increased in recent years thanks to Dubai’s handling of the coronavirus pandemic, with the government keeping the economy relatively open. Russians also settled in the United Arab Emirates as a refuge after the war in Ukraine.
As the wealthy once again flock to Dubai, high energy prices are fueling a wider boom in the oil-rich Gulf states. Financial groups are moving to the emirate as a base to service the region, where excess revenue cushions the blow of inflation felt more keenly elsewhere.
“Nakheel pays lower spread and gets more money for new projects including Palm Jebel Ali,” a banker said of the deal.
Nakheel’s Palm Jumeirah, the man-made island synonymous with Dubai’s glamour, is one of the city’s most expensive neighborhoods, recording the highest average sale rate in August, but there’s barely any room left for new developments.
Nakheel plans to build 1,700 villas and 6,000 apartments in Palm Jebel Ali, which is one and a half times larger than Palm Jumeirah, people familiar with the matter said.
Average selling prices for the year to August were up 9% – with apartments up 8% and villas up 16%, CBRE said in a report earlier this month. Valuations nonetheless remain below their last peak in 2014, after which falling oil prices triggered a collapse in regional economies.
In August, transaction volumes increased by 70% compared to the month of 2021. Year-to-date volumes have reached their highest level since 2009, when a previous bubble burst during the global financial crisis .
Nakheel was at the heart of Dubai’s debt calamity that year, when the emirate had to look to neighbor Abu Dhabi for $20 billion in bailout loans to avoid a damaging bond default. .
But analysts warn that this real estate boom could also run out of steam.
Taimur Khan, head of research at CBRE in Dubai, said average rents were seeing near-record growth, rising by almost a quarter in the year to August. However, with sales growth already receding, “we could see the rate of rent growth start to moderate in the not too distant future,” he said.