Investor Sentiment Remains Low in Dubai amid Global Economic Uncertainty

DUBAI, Oct. 26 (Xinhua) -- The Sheikhdom Dubai, which is considered the business hub of the Gulf state United Arab Emirates (UAE) and of the Gulf Arab region, increasingly feels the heat of global and local uncertainty, driven by the Euro debt crisis and recession fears.

The Institute of International Finance (IIF) said last week that the UAE's economic growth will decline to 3.1 percent in 2012 from 4.4 percent in the current year. On Monday, bank Emirates NBD, the largest UAE and Middle East bank, shocked investors when it reported a 59 percent declined in third quarter net profits, amounting to 175 million dirham (47.72 million U.S. Dollars).

Customer deposits dived 8.2 percent during the first nine months to 183.6 billion dirham (49.97 billion dollars). What is even more worrying is the fact that Emirates NBD's impairment on loans increases.

"Portfolio impairment allowances increased by 1.57 billion dirham (0.43 billion dollars), taking the total allowance to 3.7 billion dirham (1.01 billion dollars), or 2.45 percent of credit Risk Weighted Assets," a statement released by the Emirates NBD said.

A one-time provision of 950 million dirham (258.69 million dollars) to a Dubai-based government related entity (GRE) pushed the Portfolio impairment allowances in particular higher. Non- performing loans (NPL) make up to 14 percent in the Emirates NBD's loan portfolio and the figure is expected to rise during the next two years, according to analysts.

Emirates NBD's disappointing results remind the Gulf emirate Dubai and the UAE that its benefit growth has its limits, although the Arab trade hub benefitted from the turmoil in the Middle East and North Africa.

Since January 2011, when the Arab turmoil began, tourists have been avoiding Egypt and Tunisia and flock to Dubai. The Dubai International Airport is expected to cross the 50 million passengers for the first time this year.

Foreign trade in the UAE increased during the first half year as Dubai's trade soared by a quarter to 345 billion dirham (93.94 billion dollars), according to figures released by Dubai Customs last week.

While the growth in Dubai's core activities of trade, retail sales and tourism is solid, the retrenchment in the construction and real estate sectors continues.

Dubai's real estate sector "will not pick up before 2012" according to real estate service provider Asteco as there is still a excess supply, especially in the commercial property sector.

The situation is so serious that Speedex Properties offers a two-month rent holiday if firms sign a rent contract for new office space in Dubai-Deira near one of the city's largest Metro stations.

As real estate firms have weight of 28 percent of the local stock market's market capitalization, the Dubai Financial Market ( DFM) General Index continues to trade at a multi-year low.

Nevertheless MSCI, one of the world's leading index provider, is currently examining if the UAE shall be lifted to "Emerging Market" status from "Frontier Market" at the end of the year. Such a step could increase foreign direct investment and help the crises-ridden real estate market to get back on track.