Abu Dhabi steps in to prevent complete meltdown in Dubai and The Atlantis is Empty

Dubai’s property prices are falling like the proverbial rock and the government of Abu Dhabi has stepped in, in an effort to prevent a complete meltdown in Dubai’s property market. Dubai’s two largest mortgage lenders, Tamweel and Amlak Finance have reached the point where they are unteneble and Abu Dhabi’s state owned “Real Estate Bank,” will take over both lenders.

Dubai has already borrowed an undisclosed amount of money from oil-rich neighbor Abu Dhabi, and this is the next logical step. Both Amlak and Tamweel’s stock value has fallen over 80% this year, and neither company is in a position to raise financing from outside the UAE. Amlak has suspended offering new home mortgages, and several foreign banks, including HSBC and Lloyds TSB have tightened lending criteria.

Atlantis - Not quite as empty as the original

Credit-default swap contracts covering the debt of Dubai Holding LLC, the emirate’s holding company, were last quoted at 1,100 basis points on Nov. 21, according to CMA Datavision prices. That compares with 245 basis points in March. This shows a massive decline in the perception of credit quality and cheap international lending has all but disappeared. almost overnight. Amlak has already taken on another $381 million in Islamic loans this year, and Tamweel reaised $600 million from the sale of Islamic bonds. Amlak and Tamweel shares were suspended from trading today, which should mean good news for shareholders.

Similar issues abound – Kuwait’s government is taking steps to re-capitalize Gulf Bank KSC after they reported a $1.4 billion loss in trading derivatives; real estate prices in Doha have fallen by 50 percent over the last month alone; and according to Gulf News, room prices at the recently opened Atlantis hotel on Palm Jumeirah have been slashed to $44 a night. To put that in perspective, prices were originally quoted as $454 per night. Ouch! Despite these massive cuts, occupancy was just 26% on Sunday, 30% on Monday and 33% on Tuesday.

The real question is still just how far will Dubai property values fall?