Five years ago, Nakheel’s main problem was keeping up with demand. Back in 2007, anxious buyers queued for as long as twelve hours just for the privilege of handing over cheques for millions of dirhams. The Jumeirah Park project had just launched, and the queue of cars stretched back from Nakheel’s sales centre for several kilometres.
That was then; this is now. At this month’s launch of Nakheel’s newest venture on the Palm Jumeirah - its biggest claim to fame - the queues barely stretched around the counter.
So what went wrong? It’s safe to say it’s not been an easy few years for Nakheel. Famous for raising man-made islands out of the Arabian Gulf, the developer attracted even further unwanted fame globally as it battled to restructure more than US$16bn in debt in the wake of the Dubai property crash.
Fast forward to April 2012, and as chairman Ali Rashid Lootah sits down to announce Nakheel’s latest annual results, it appears things have changed - at least in terms of the developer’s fortunes anyway.
“We achieved profit of AED1.28bn (US$348.5m)… It has been a good year. We have been doing fantastic across the board, across all of our areas… It is a big sign of the recovery of the market,” he says.
“We see the demand for our properties increase and I can also assure you that 2012, from the early figures we have, is going to be even much better.”
That is partly because, according to Lootah himself, Nakheel has managed to slash contractors’ claims down to just fifteen percent. Within a few short years, Lootah has turned the company around and brought it through a painful restructuring process.
“Our cumulative profit for 2010, plus 2011 - post restructuring - was AED2.25bn (US$612m). Compared to 2010 it is a 53 percent increase,” he states.
The 2011 figure is also up 33 percent and 2012 looks even more positive, particularly as the developer gets back into its core business and the phones start to ring at its sales centre.
“This is the start of the recovery,” says Lootah. “We are launching new projects and people are buying the new product from Nakheel and paying down the 40 percent deposit.”
One of the new projects to capture investor interest is Palma Residences, the first residential project to be launched on the famous Palm Jumeirah since the market crashed four years ago.
Due to be completed in eighteen months, Lootah claims the project sold out 30 percent of its units — which are priced at between AED6m to AED8m each - within a week of being launched.
With sales of AED223m (US$60m) already in the bag and 30 more potential buyers in the pipeline, Lootah says this is a sign that the recovery is fully under way.
“We want to prove that Nakheel is serious,” he says. “The 30 percent sales in one week is a sign of the trust in Dubai and a sign of the trust in Nakheel… We only want to deal with serious buyers, people who will commit with us to complete to the end of this project.
“We are building a complete community and most of the buyers are end-users. It is a sign of investors’ confidence in Nakheel and I am really happy about that… Our intention is to make Palm Jumeirah the tourism destination of the region, not only Dubai.”
So is Lootah now claiming the property market has started its recovery process?
“I think we have the proof that the prices are not going down. I have evidence that the price is going up. Don’t believe what you read, I don’t know where they get their information but we have the proven fact… so don’t believe these stories, they are not true,” he says.
Lootah’s argument is that prices on the Fond end of the Palm have increased 30 percent since sales reopened a year ago. “We sold already over 70 percent of the Frond end and still demand is going,” he states.
Whether Lootah is right in terms of a recovery does of course depend on which period you compare the figures to. Arabian Business recently unearthed a 2008 sales brochure showing the prices of homes in Nakheel's Jash Hamad building, part of the Palm's Shoreline development.
Compared to the same type of units in 2012, the comparison clearly shows prices have plunged by as much 75 percent since the crash and, in some cases, properties with an asking price of AED7.6m (US$2.01m) in 2008 are now being offered for below AED2m.
While most analysts might compare prices to the height of the boom in 2008, Lootah prefers to compare them to 2010, when the market had fallen at least 60 percent and prices were hovering around the bottom.
“Let’s forget about 2008, it's history… let us compare to 2010,” he insists.
For those who bought at the height of 2008 and are paying mortgages, the statistics do not make for easy reading.
Lootah says that Nakheel’s independent valuation experts have confirmed that prices have now stabilised and there was therefore no need for any impairment charges to be built into its accounts for 2011.
“There is no more impairment as the market is picking up and stabilising. There is no need for that… They are independent valuation contractors and they have taken that position.”
With the buyers now - according to Lootah at least - coming back on board, the next issue hanging over from Nakheel’s $16bn restructuring is the money owed to its contractors. As part of its agreement, trade creditors were given 40 percent of what they were owed in cash and the remainder was given in the form of sukuk.
Lootah says a third tranche of an Islamic bond, or sukuk, is likely to be issued in two months’ time and will be part of the settlement of AED5.3bn (US$1.44bn) worth of claims.
The first two tranches of the bond are worth more than AED4bn (US$1.09bn), the first of which was issued last August and the second of which is due by the end of this month. Last year, Lootah stated that it had slashed the value of “exaggerated” contractor claims against it by 75 percent. “You know contractors, they always exaggerate,” he said in September.
He says now: “Contractors always try to get away with [inflated claims]. They always try, I can’t stop them from trying, but we know the business and we are fair with them.
“We have been open and we employed an independent claims consultant so we didn’t want to be influenced by any opinions from inside Nakheel… We asked them to give their comments on their claims, and they are welcome to give their opinions, but if they cannot defend their claims then it is tough luck,” he says.
At present Nakheel is handing over around 40 to 50 units a day, Lootah says, and in August 2011 it said it planned to handover 7,982 homes by the end of 2012.
He also reports that interest in financing the first AED300m needed to develop the first phase of The Pointe - a retail project at the tip of Palm Jumeirah opposite the Atlantis hotel - has also been strong.
“Banks have excellent appetite for that project, more than any other project. We are already engaged with a consultant on the design and a retail consultant to make sure we make it the best project and the best retail outlet in Dubai.
“We hope, by the end of the year, that this project will kick-start for sure. We will tender for it by the middle of this year, but we are careful that we have all the small details well planned… it is going to be a unique project.”
With the state-owned developer having sold 74 plots of land worth AED657m (US$178m) on the Palm so far this year, including a 60,000 square foot plot opposite the Atlantis hotel for AED87m (US$23.6m), things are looking up.
Some experts however still suggest that Nakheel is too heavily tied to its own past, and a rebranding exercise - possibly even a name change - should be considered. Does he agree?
“No,” he says. “It is a good name… Regardless of what has happened, people are coming back. It is Nakheel, no way.”
Down the road in Abu Dhabi, the emirate’s two largest developers — Aldar Properties and Sorouh Real Estate — look set to merge. While analysts believe this may lead to a move towards increased consolidation, Lootah says he isn’t entertaining any similar thoughts. “I don’t know about the other company but NakheeI doesn’t think so,” he says.
Whatever one may think about the company’s chequered past, a strong and profitable Nakheel can only be good for Dubai.