Real Estate Collapse in Dubai will Affect Indian HNIs

December 1, 2009	(Be the first to rate this story!)  Loading ...
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The leveraged asset purchases of Dubai-based wealthy non-resident Indians in the past few years may begin to haunt them, as the collapse of real estate prices in the emirate prompts calls for additional funds as margins which may force them to sell some Indian assets, experts say. “Indian HNIs (high net worth individuals) made good use of easy credit lines in the past two years,” says Dubai-based JRG International Brokerage CEO PK Sajitkumar. “They even made investments using leveraged money, investing into India-focussed funds, buying freehold property and buying into Indian shares through participatory notes,” he said. “The situation is now so bad that many of these people will have to sell their leveraged assets, may be at a loss, to meet margin calls or retire debt.”

Slide of real estate and other asset prices in the Middle East has begun to accelerate after Dubai World, the government-backed conglomerate, last week sought moratorium on debts of about $59 billion. This has led to lenders seeking additional collateral for assets funded so far. Those unable to deposit more funds with the banks may be forced to sell assets, including Indian stocks, or even think of selling Indian real estate. The fall in Dubai property prices has gained momentum over the past two weeks with rates going back to pre-2006 rates.

According to Saud Masud, a real estate analyst with UBS Dubai, the city-state’s property market could fall by up to 30%, from current levels — it’s already down 50% from the past year’s levels — and may take more than a decade to recover. “HNIs who bought into Gulf real estate in the one year since May 2007 are in trouble,” says Krishnan Ramachandran, CEO of Dubai-based Barjeel Geojit Securities. “They will have to clear their debts by selling off a sizeable portion of their investment portfolio.”

Dubai-based money managers say banks in the emirate loaned such clients 8-10 times their capital while buying freehold property in 2007 and 2008 when the real estate was booming with the desert being sold as the next big international financial centre behind New York and London. For investing into India-focussed funds — funds that invest into Indian assets such as real estate, equities or debt — wealthy investors were given loans 3-5 times their capital, according to them. Mauritius and British Virgin Island-registered asset management companies have launched more than 500 India-focussed funds since 2007, global money managers say. Leveraged investments account for over 60% of the total asset under management of all such funds, they say.

Those wealthy individuals who have exposure to Indian equities through participatory notes issued by banks such as Citigroup, Barclays and UBS may be forced to exit their positions to make good the losses incurred in Dubai. These investors will not be able to liquidate all their Indian debt portfolio as rules stipulate such assets are held at least for a year to 3 years. “Leveraged investors may now have to sell risky/high-return assets to cover their losses in Dubai. Such selling could impact Indian markets as well,” said Saurabh Mukherjea, head of Indian equities at Noble Group.

News Published Under:   Real Estate India, Non Resident Indian (NRI) |

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