In most markets, raising finance for major property deals can be hard at the best of times. But in the Gulf it has become all but -impossible.

The region’s conventional finance industry first felt the pain of the global economic downturn in late 2008. Even as it did, bankers in the Islamic finance sector were confident they could weather the storm better. But problems with a succession of high-profile sukuk (Islamic bond) issues in recent weeks prove that confidence is dissipating.

In mid November, the real estate division of the troubled Saudi conglomerate Saad Group missed a payment on its $650m ‘Golden Belt 1’ sukuk, which had been raised to fund the leasing of land in Al-Khobar.

Now, Dubai property developer Nakheel is trying to renegotiate the repayment date with creditors for its $3.5bn sukuk which matures on 14 December.

In the light of the region’s wider economic difficulties, serious doubt is now being cast on the viability of sukuk for the construction industry in the near future.

In particular, investors are concerned about what happens in the event of a default. It is not currently clear whether, if Nakheel does default, the investors will have security over the assets on which the sukuk is based or whether the assets have merely been included to comply with sharia law. This issue needs to be addressed urgently by the market.

The downturn in the property sector is -proving to be the first real test of the regional sukuk market and could set an important -precedent for any future deals. Resolving the current legal and security issues is imperative if the Islamic finance industry is to preserve the potential of sukuk.

For construction firms keen to find as many sources of funding as possible, the ability to continue raising debt through sukuk is just as vital.