Dubai CityScape fails to attract buyers, Stock Market in Freefall, and UAE Banks face $136 billion defecit

Record attendances notwithstanding, the mood at this year's Dubai Cityscape could best be described as "wary," and the exhibition failed to lie up to expectations investment-wise. Despite announcements of new developments of epic proportions, this failed to translate into sales.

This year's Cityscape was highly anticipated in the hope it would boost investor confidence after a rocky few weeks in global markets.

Rohan Marwaha, managing director of Cityscape said this year's show had been about cautious optimism. People are thinking more about where and what they invest in.

In an apparent contradiction (other wise known as spin) the organizers say that there is "much more interest this year compared to last year," yet property sellers are saying that potential buyers are afraid of investing.

Abdul Rahim, sales executive at RAK properties said sales during Cityscape 2008 were "a little bit down compared with last year."

Mansoureh Ghezipour, property consultant, Best Homes Emirates Real Estate, said, "People trusted the market last year but this year they are afraid of buying. The number of visitors is higher this year but nobody buys."

Sikander Aziz, sales executive of Bonyan International Investments Group, said the interest of visitors is higher, but the actual buying is low.

"There were a lot of buyers last year." When asked the possible reason behind the lack of initiative to purchase, Aziz said, "Global liquidity conditions."

Lack of transparency in Dubai's banking system is another reason for the "cautious optimism." Dubai's banks, like many around the world are facing a lack of funds, and no matter how many announcements of new mega-projects, if there are not enough funds to go 'round, many of them will not be built, and there are already calls for government to step in and fill the current deficit."Banks need the necessary capital to provide financing, and with funds flowing out of the country, the only option for the government is to step in," said a senior bank official. Most banks refrain from being transparent in relation to the issue, and many claim that no liquidity crisis exists whatsoever, including the major banks.

"Transparency in such circumstances is crucial towards the government and the Central BankCentral Bank," the official said.

By the end of 2007, total bank assets exceeded $272 billion, and they stood at $400 billion at the end of last June, according to the Central Bank, a figure that will fall by $136 billion as a result of the withdrawal of foreign funds.

To many observers, the levels to which share prices have plunged in reaction to the international financial collapse are very attractive indeed, as many companies are being traded at prices below their book value.

"This means that these companies will generate better value if liquidated, and it only reflects that the panic selling that is taking place is beyond any logic," said Mohammad Ali Yasin, managing director of Shuaa Securities.

"The panic prevailing as a result of the crisis is not helping anyone, and what is certain is that smart money is cautiously building positions to benefit from this drop.

"The government can also benefit from the situation as the interference will not only restore confidence, but generate generous profits as well," he added.

Meanwhile, UAE banks are on the verge of a serious crisis due to a $136 billion funding shortage, senior bankers revealed yesterday. With foreigners accounting for about 40% of UAE bank deposits the gap in the spread between total loans and advances and total deposit is increasing at an alarming rate

"Foreign deposits that are being withdrawn from the system in addition to the increasing liabilities compared to assets are forcing the UAE banks into a corner," a top official at a leading bank said on condition of anonymity.

"The Central Bank did not actually pump Dh50 billion into the system, as these facilities are for banks to borrow. Instead, what is needed is strong government intervention by placing deposits with the bank to compensate for the outflow of foreign funds," he said.

Total foreign deposits along with European Commercial Paper issues and Medium Term Notes stands at about 35% of total assets, according to a statement by the central bank last week.

Meanwhile, total bank deposits fell short of total loans and advances by more than $15 billion in June compared to a $5 billion surplus in June 2007, according to official statistics.

"These foreign funds were actually hot money that flooded into the country during the increasing speculation about the de-pegging of the UAE dirham from the US dollar, especially after Kuwait departed from the peg," a senior executive at the National Bank of Abu Dhabi said.

"Now the trend has reversed, and accordingly we find more than $54 billion is being withdrawn from the system," he added.

The end of speculation in the currency market accompanied by the mounting international financial turmoil forced foreigners to abandon their positions in the UAE to cover the losses.

The impact on the stock markets was obvious, where more than $80 billion was lost in market capitalization since the beginning of the year, of which $35 billion, 44% was recorded last week alone.

"For the government to interfere, is up to the concerned authorities, but as a market we cannot interfere, not even by diminishing the maximum limit down, a practice that proved a failure in Saudi Arabia," a top official at the Dubai Financial Market said.