‘Learn from crisis rather than cry’

Ali Al-Ghannam

LONDON: Kuwait Finance House (KFH) is a pioneer of Islamic finance, and is one of the largest Islamic banks in terms of capital, assets and balance sheet. KFH has subsidiaries in Turkey, Bahrain and Malaysia. It is a major player in the real estate sector financing pioneering portfolios in the UK, Sweden, the US, Johor Baru and Shenzhen. Here, Ali Al-Ghannam, head of International Real Estate, KFH, discusses the impact of the financial crisis on the real estate market and the prospects for Islamic banks in 2009. Excerpts:

What has been the impact of the credit crunch and the underlying causes?

The correction in the real estate market in the GCC (Gulf Cooperation Council) started at the end of 2006. Everyone in the industry knew that a correction was due because of the historical high prices and overvaluation of assets. But nobody anticipated a credit crunch to happen like this, because nobody knew what exactly was happening in the US market, except the US officials. The crisis was 100 percent US-made, but unfortunately the rest of the world has to deal with it. The impact on the GCC market is mostly psychological and I blame the media for overplaying this. I am not saying that the financial crisis is not a problem. But it is not that bad. We should learn from it rather than cry about it.

Don’t you blame the regulators all over?

We have to blame the US government first. They saw this coming and did not do anything about it.

What about the impact on the real estate market in Dubai?

If you talk about the GCC, I prefer to omit Dubai. I don’t see Dubai as a model to be copied. Dubai is a service provider, a back-up center for the world and not an actual city. Dubai was able to market itself as a brand name, just as Monte Carlo, Monaco and Singapore.

How has the credit crunch impacted on the Islamic finance sector?

Most of the Islamic investments are based in real estate. We are not immune. The industry itself is still in the developing stage. There is a long way to go. If the industry aspires to be a viable alternative system in the future — and it definitely can be such a system — then we have to create the necessary infrastructure and architecture both at country and global level. In the Kuwaiti real estate sector, its impact has been mostly psychological. The liquidity is there. It is just the confidence that is lacking. You need to encourage people to spend money. The Kuwaiti government with a KD2 billion stimulus package has followed other governments, but recovery will be a slow process. The media played a huge role in getting people scared. People are hearing and reading that there is a problem, so everyone is behaving as if there is a real problem.

How is KFH coping with the impact of the slowdown?

Many Islamic financial institutions are facing tough times and it is up to their governments to help them out. KFH is less affected. We are a solid institution but we are careful. We had the opportunity to successfully liquidate our funds in the US and UK in 2006. We are also in the process of liquidating our Pavillion Fund in Malaysia and our portfolio in Shenzhen in China. Subsequently, our real estate assets have declined from $6 billion in 2006 to $3 billion now. We also have a long-term Al-Nibras II Fund in Malaysia which has invested just under $1 billion in the South Johor Economic Development Project. Realty investments should follow simple supply and demand dynamics. We have to go back to basics. In the GCC especially Dubai, we have seen speculative developments targeting outsiders. This is not natural. Our project in Johor Baru is based on an actual need between Singapore and Malaysia.

Where do you see the new opportunities for investment?

Between the GCC and the Far East, we see huge opportunities. So far, the sector is not capitalizing on this. The US and UK markets are still ones which you cannot ignore. But if you open on another front, then East Asia — Japan, China, Malaysia, Singapore etc. are good markets. We are interested in assets that are based on a natural not artificial need for development. We like the UK market where we had a very successful Al-Manar Fund. We are looking for the right time and opportunities to re-invest in this market. We would love to be part of the London 2012 Olympics projects through financing a transaction or so, because it is a huge project. But nobody has approached us. — M.P.

Link: http://www.arabnews.com/?page=6&section=0&article=120991&d=30&m=3&y=2009