Dubai firms to merge
Dubai's two largest mortgage providers are to merge with a bank controlled by the United Arab Emirates Government, the strongest signal to date that the federal authorities are prepared to support the floundering UAE property market...
Amlak Finance and Tamweel will merge into an entity "under the umbrella" of the Real Estate Bank, a unit of the ministry of finance, it was announced over the weekend.
The confidence-building intervention comes six weeks after the Dubai Government said it was seeking to merge the two Shariah-compliant companies.
Merging the home financing entities into a national bank could help ease liquidity shortages and provide access to funding, analysts say.
"The merger will create a new entity that will serve as a cornerstone of the real estate finance market, which has great fundamentals," said the ministry, which is also injecting up to £10 billion to lubricate the UAE banking sector's liquidity shortage.
House prices in the UAE have declined for the first time since 2002 as buyers deserted the market and the credit crisis forced banks to tighten lending and developers to cancel projects and make staff redundant.
HSBC said recently that prices had fallen four per cent in Dubai and five per cent in Abu Dhabi, while estate agents talk of price collapses in some developments of up to half as speculators sold investments.
Amlak and Tamweel are both partly owned by the Dubai Government. They had already been trying to win banking licences from the central bank to strengthen their capital bases by receiving deposits.
However, analysts say that the good news of perceived Government support for the two mortgage companies will not be enough to turn around the poor sentiment gripping the country's equity and property markets.
Both Amlak and Tamweel, along with other real estate linked companies, are being hammered in Dubai's stock market crash, losing more than 80 per cent of their market capitalisations this year.
The Dubai Financial Market suspended their shares on Sunday pending details about the merger transaction.
Yet the general index continued to plummet, losing 4.7 per cent as investors continued to flee the market.
The Dubai Government formed a committee to deal with the growing effect of global slowdown on the economy, including the property sector, which is coming to the end of a rollercoaster growth spurt.
Source: The Financial Times