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The second quarter shows signs of an obvious dampening effect on the performance of the Shariah-compliant financing institutions that are related to the real estate industry.
According to the latest reports released by Bloomberg, a majority of the Shariah-compliant debt funds in the market have underperformed, much to the disappointment of the investors who indulge into these funds with huge amounts. The Shariah-compliant loans have dropped by 40 percent to almost AED 8 billion or USD 2.2 billion.
The real estate industry has also shown signs of slumping, thus, giving the investors a good number of substantial reasons to worry about their money.
Over the past few months, most of the Islamic banks have suff mainly because of the downturn of the real estate industry.
With a number of real estate firms restructuring their liabilities and the corporate giants like the Saad Trading and the Investment Dar defaulting on Shariah-compliant bonds and loans, the Islamic banks in the Middle East region are forced to become very careful while deciding on giving credit to the real estate firms.
Such defaults have also led the Central bank to instruct the UAE banks to tighten their grip on their credit policies. In case of any default, the lenders must take any legal measure against the defaulters within 90 days instead of 180.
The rents for the residential apartments have continued the decreasing trend because of the rising supply and falling demand. It seems that the real estate scene will take quite a long time to recover from the slump and a majority of the real estate companies and property advisors have an ominous feeling that they will have to deal will this problem for a little longer.
The newly constructed houses, apartments and villas are also seeing a hard time dealing with the buyers. The builders are not very pleased with the pricing and bargaining situation as the ball is in the buyers’ court, which are limited in number as of today.
According to the latest real estate market report published by Asteco, a leading real estate company in UAE, thousands of newly built apartments will await their fate by the end of this year. In these tough times, the builders and the property services companies hardly see a positive sign of appreciable business. Real estate analysts predict that the chances of the current scene changing for better are bleak.
The sales of the residential property projects have remained dull as most of the investors want to sit back with their current portfolio of property investments and want to watch the market for some more time before jumping in to increase their assets in the real estate basket.
This situation has further triggered the Islamic banks to lose their confidence in the real estate firms. As an answer to the urgent need of the hour, the Abu Dhabi Securities Exchange’s (ADX) are planning to launch Shariah-compliant real estate investment trusts (REITs). These real estate funds have high liquidity, possess the features of a stock and can be publicly traded. The features and benefits of these funds would certainly boost the real estate financing scene.
The optimistic ones see the situation from a completely different angle. Many senior management executives from the real estate background believe that the current situation of an over-supply in the real estate market is necessary as it would lead the real estate companies and the property services to finally treat the customer as the king.
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