Dubai corruption probes shake investor confidence

The news of the deputy CEO's detention in connection with financial irregularities hit the group's shares hard on the Dubai Financial Market, coming less than a month after a police investigation into Tamweel's former CEO and its head of investments.

Abdullah Nasser Abdullah is also CEO of Tamweel Properties & Investments, a wholly-owned subsidiary.

Tamweel is Dubai's largest mortgage lender, and a central part of the emirate's booming real estate market.

The investigations form the latest act in the Dubai government's crack-down on instances of corruption, embezzlement and abuse of position as it attempts to improve transparency and strengthen investor confidence in the property sector.

Zero tolerance for corruption

In a statement issued by the Ruler of Dubai's office, the city's attorney general set the tone for the zeal with which those suspected of bringing the emirate's real estate sector reputation into disrepute would be pursued: 'There will be no tolerance shown to anybody who tries to exploit his position to make illegal profits.'

'Dubai Government follows a transparent and clear policy on such issues. There are strict directives to have zero tolerance towards all aspects of corruption, bribery and taking advantage of official positions.'

Shortly after the release of the statement, at the end of August four employees of Dubai Holding subsidiary, real estate developer Sama Dubai, were also taken into custody following allegations of bribery as part of the ongoing investigation.

A few days prior, Dubai World's giant property wing Nakheel had also been embroiled in the growing scandal as two men, one a former employee, from its sales department were arrested, showing that even government-run companies are not exempt from the purge.

Creating a mature real estate market

Investors can take heart from the breadth of the investigation, which began in April with the arrest of former Deyaar CEO Zack Shahin, showing as it does that the government is serious about rooting out the murky practices that may have characterised the real estate sector when the boom first began attracting interest from outside the region.

In the short term the investigation may have dented investor confidence, which, along with reports of a possible 2009 slowdown of around 10%, has been reflected in the sharp downturn seen in property company shares on the local exchange.

Emaar, one of the Dubai Financial Market's primary supports, has been hanging on to the Dhs8 mark for weeks, one of its lowest points since 2005, repeatedly having to be propped up by outside intervention. The other listed property developers are faring little better in the current climate.

This should probably be seen as a minor downturn while the market adjusts to the consolidation and transparency measures that the government is bringing into the sector. The corruption probes are part of a wider picture involving the creation of the emirate's Real Estate Regulatory Authority, the announcement of a dedicated Property Court, and new laws including the roll out of a strata system, compulsory registration of off-plan sales and mortgage legislation.


See also:
Dubai prices likely to see correction 'by 2010'
Investors underrate Emaar stock