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Lost in Dubai: Thai companies hit by emirate's property slump(Bangkok Post (Thailand) Via Acquire Media NewsEdge) Mar. 14--As Thai companies expand their operations to countries promising more potential, there are times when obstacles arise and smaller issues, such as having a good guarantee on the work being undertaken, can offset the higher costs that they sometimes face. Such is the case in Dubai where a six-year property boom had created a glittering metropolis and financial capital. As things in Dubai are grinding to a halt, the city that has been the centre of activities in the Middle East is now bracing for the crisis phase. With the bursting of the real-estate bubble, Thai contractors such as Italian-Thai Development, Nawarat Patanakarn Plc, Ch. Karnchang and Power Line Engineering Plc are all feeling the pain of the problems in the region. "Yes, there are some problems in the work we are doing in that part of the region and outside Thailand," said Polpat Karnasuta, the president of SET-listed Nawarat Patanakarn. One of the problems, he says, is the simple fact that the crisis has affected the companies that were undertaking the projects and now they have become "more fussy" with their payments. This, however, is not unexpected. According to Jones Lang LaSalle, more than half the residential and commercial property projects due for completion in places such as Dubai between 2009 and 2012 have either been put on hold or cancelled. Morgan Stanley said that real-estate prices had fallen by 25 percent on average since their peaks in September and some $263 billion worth of projects throughout the UAE have been delayed or cancelled. The value of the property market has slumped 45 percent and it is feared that in the next two years, non-performing loans in the sector may reach $25 billion, affecting the earnings of Thai contractors. These developments indicate that the six-year golden era, when the sector contributed 30 percent of the economy of the UAE, has ended. A UBS analyst estimated that the delay of debt payments by homebuyers and property investors in Dubai would cost developers US$25 billion over the next two years. Mr Polpat, whose firm ventured into Dubai only recently, says that his company had learned the lesson and would be more cautious going forward. "This was the first venture outside Thailand for us and we have been hurt," he said, without specifying the extent of the losses. "What we have done is establish joint ventures with strong local partners there rather than go it all on our own or with a Thai joint partner." NWR had entered the Dubai and Indian markets with ITD and one of the biggest problems was that they were using a lot of Thai employees. "We were stuck in a situation where project owners were delaying the project while we could not halt the construction process because half the construction workers whom we had taken there were Thais," he says. "We were caught in limbo," he adds, saying halting and sending the workers back would mean that if the project were to be revived in a few days or weeks, he would need to recruit new employees or ask the old team to come back from Thailand. Dubai is not the only place where NWR and ITD are facing the problems. They also feel the pinch, albeit to a smaller degree, in India, where they have tried to undertake various projects such as shipbuilding. Mr Polpat says that it is not all that bad in India as government-related projects remain on track. Only private projects are affected by the tight credit. "We did not think the situation would be so bad and when we wanted to open a letter of credit or standing credit, the fees Thai banks charge (about 2-2.5 percent) were not justified and the project owners were not willing to take that additional burden." To the question why the company looks to hire Thai workers, Mr Polpat says language is the major reason. Communicating with Thai workers is far easier. Between 300 and 400 or almost half of the employees of the ITD/NWR India venture are Thai. These two firms are not alone. Chalee Janwijitkul, managing director of Thailand Carpet Manufacturing Plc, said that his company had been in the carpet market in Dubai for some time but it now found the economy and property investment slowing significantly. He first saw the signs in the last quarter of 2008 when new housing projects cancelled launches in droves. Although the company still has not received order cancellations, Mr Chalee admitted that the number of new customers had fallen by 30 percent, prompting him to adjust down the sales target in the Middle East by 25 percent to US$2 billion. Likewise, Prapakorn Vatanayakul, managing director of Architects 49 Co Ltd, said that the company detected the signs of the property slowdown in Dubai at the end of last year. Some projects are downsizing while some customers asked his companies to delay their projects. To see more of the Bangkok Post, or to subscribe to the newspaper, go to http://www.bangkokpost.com. Copyright (c) 2009, Bangkok Post, Thailand Distributed by McClatchy-Tribune Information Services. For reprints, email [email protected], call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA. |