Tuesday, July 27, 2010

Dubai Real Estate: Lavish House Of Cards Built On Sand

Dubai may boast about the world's highest building, Burj Khalifa, a rocket-shaped edifice soaring 2,717 feet with views reaching almost 60 miles, but with almost zero occupancy rates in the building and those around Dubai are good enough reasons to see the realities on the ground.

One doesn’t need to be an economic genius to understand the fact that real growth is sustained only through strong fundamentals, a virtue that doesn’t quite exist in the Dubai real estate segment. Dubai’s economy diversified away from oil towards real estate and tourism. But the economic recession and international financial crisis caught up with Dubai and other regions of the world. Finally, the inflated real estate bubble that propelled the frenetic expansion of Dubai in the last six years on the back of borrowed cash and speculative investment, has burst. What's worse is that the Dubai real estate crisis is slowly but surely spreading to other emerging markets especially in Middle East And Asia making the world economic recovery a distant dream.

  • Till the money ran dry, Dubai's $582 billion construction boom was financed by lenders flush with oil money and safe haven seeking black money.
  • Half of all the UAE's construction projects, totaling $582bn (£400bn), have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert. Dubai has fallen about $80 billion in the red, primarily from Dubai World, a state-run property conglomerate that accounts for about $59 billion of the debt.
  • According to recent projections, Dubai real estate prices could fall as much as 60 % this year from their peaks in July last year, while Abu Dhabi may slide as much as 20%. Testimony to that is the fact that a four-room villa, which was evaluated at $4 million several months ago, is now available for $1 million but there are no buyers. Dubai’s example shows how quickly countries can slide off the path to recovery and land into trouble. According to analysts, it would take years for the Dubai real estate market to come back to levels as high as they were in 2008.
  • With banks stopping any more lending and the stock market plunging almost 70%, home prices in the sheikhdom have dropped about 50 % from their peak two years ago and Credit Suisse estimates a further decline of as much as 20 %.
  • Dubai also never wanted 'foreigners' on a permanent basis. The country showed very little respect for the rights of foreigners in their country, including the labor market, and reversal of resident visa policies (particularly the over 60's, a massive potential market of retiree's) and foreigners never felt confident enough of their payments in escrow accounts with too many variable and unknowns around. Another important human factor against Dubai is the Islamic mindset as many westerners found out when they were made redundant before the strict legal system of the country. A case in point is Dubai's strict legal code where defaulting on debt or bouncing a cheque is punishable with jail. Any expatriate in financial difficulty knows the safest bet is to take the next outbound flight.

Whenever any economic story goes sour and looses its glare, the least talked about feature is the human element. With Dubai's real estate sector going bust, perhaps those who suffer most are the construction workers from the Indian subcontinent. The workers who had worked on perilous building sites with all their blood and soul earning as little as £70 a month played a very important part in the inflated Dubai growth story. The human effort and skill is the only positive to have emerged from the whole fiasco.
These workers who made it possible for the rich Arab Sheiks sitting in their air conditioned mansions to declare that the Sun never sets on Dubai are now facing a bleak future. The Indian embassy in Dubai has already received requests from almost 20,000 Indian citizens to be sent back. Keeping in mind that most of these workers took loans to pay agent fees to come to Dubai and lead a better economic and social life will are now flying back with nothing but large debts.

Dubai And Its Notorious Escapades

There is no denying the fact that Dubai, one of seven states that make up the United Arab Emirates (UAE), is in deep crisis. The crisis has not just appeared overnight but has been slowly building up as Dubai's Arab tycoons have tried their best to make the city breeding grounds for everything fake and unjust. Tracing Dubai's notorious past could very well bring out the answers of its not so rosy present and its bleak future.

Arab business tycoons and sheikhs who have always had a say in the country’s business as well as foreign policies have always ruled Dubai and formulated its foreign polices to an extent. Those policies however were not welcoming to those labors and small time workers who were toiling hard to make the city of Dubai worth living. With Dubai’s real working population as foreigners mainly from South Asia, Dubai and its rulers never gave them a reason to feel at home or citizenships or something permanent. All they had was a temporary and insecure life. With the rise of the Indian economy, not many Indians are entering the Dubai trap and are more secure with jobs in their homeland. Even tourism has nose-dived for Dubai even with all the attractive beaches and theme based parks it planned.

Even though Dubai appears to be a safe haven from the outside, the fact of the matter is that its just a tax safe heaven for all the black money in the world since the Arab sheikhs don’t seem to care about the origin of the money as long as it is coming in their city. With no real regulatory body for the pool of money coming in, Dubai soon became a safe bet for gold smugglers who used to trade illegally with Iran, Pakistan and other South Asian nations. The Dubai boom of turning sand dunes into a glittering metropolis and the gold capital of the world is grinding to a halt while Arab tycoons wrapped in traditional headscarves sip fruit juice cocktails and watch Russian models twirl. Today Dubai is only for the super rich Arab sheikhs or Russian or Afghan drug lords with enormous loads of black money. All major investments that had flowed in are now moving out of Dubai. The city is left standing alone like a Ghost town with no foundation or substance but a history of notorious dealings and crime.

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