Dubai fights back with new mega projects to save its boom
Posted on 09 October 2008 with no comments from readers
After September 11th investment in the Gulf States was thought to be a joke in Western countries. Yet Arabs brought home a huge amount of money right after the 9/11 tragedy and it was the making of the Dubai real estate boom that continues today. Will the global financial crash prove a second 9/11 for the GCC property sector?
Anybody who doubts that the tragic events of September 11th proved to be the major lift-off for Dubai property should read my new book ‘Opportunity Dubai’ which is available on Amazon.com and being printed in London this week.
The book has three chapters exploring the Dubai real estate phenomenon as I watched it unfold from the launch of freehold sales to foreigners in 2002. Let us review the quote from my article at that time explaining where the big money came from that created the boom:
‘Just how much capital has come back to the Middle East from Western markets since 9/11 is a source of some debate. But last week the chief executive officer of Dubai Holdings, Salman bin Dasmal told the Australian Business Group in the Gulf’s luncheon that according to his organization’s best estimate around $300 billion had returned to the region, out of around $1 trillion held overseas at the time of 9/11.’
So there we have it. Dubai managed to turn what looked like the biggest disaster for regional investment in history into a massive opportunity by creating investment opportunities for surplus Arab cash after 9/11. The result is the boom in progress today.
Emirates A380 order
It was also right after 9/11 that Emirates announced its huge orders for the A380s and 777s to expand its fleet. Again expanding airline capacity when other carriers were suffering from a post 9/11 slump in passenger numbers seemed absurd. But that is what Dubai decided to do. Again to quote from my upcoming book about the orders at the Dubai Airshow 2001:
‘The biggest came with a heart stopping $15 billion order for Boeing and Airbus aircraft from Emirates Airline. Airbus officials just could not stop smiling all week as they reflected on what an order for 22 superjumbo A380s would mean for their company.
Even normally sceptical commentators saw Emirates’ order as a staggering declaration of confidence in the future of Dubai in particular, and the aviation industry in general. Emirates Airline chairman Sheikh Ahmed bin Saeed Al Maktoum said he was targeting 180% growth by the year 2010, and for good measure announced that a $2.5 billion third terminal will be added to Dubai International Airport over the next few years.’
New tallest building project
Roll forward to this week and the Dubai Government is taking exactly the same approach to the global financial crisis raging this week. It has announced a one-kilometre tower to surpass the Burj Dubai in height as the world’s tallest building and the Burj Dubai is not even finished yet.
Then there is to be the $95 billion redevelopment of Satwa and Jumeirah 1, the old heart of Dubai into the Jumeirah Garden City with rumors of an even taller tower as a centrepiece. This seems like madness at a time when the rest of the world is shutting down investments in a global financial crisis.
But Dubai property offers good investment yields and has delivered tremendous capital appreciation. You also have to look forward as the delivery of projects started now will be five or even 10 years into the future.
Next week the multi-billion dollar Terminal Three at Dubai International Airport will open. Remember how incredible it seemed to announce that project right after 9/11? Today the existing airport is stuffed to capacity and the new terminal space is desparately needed. The project is an immense success and brilliantly timed.
Proactive government
That is why regional investors trust Dubai. The government delivers on its promises. The airport terminal project after 9/11 was not mere talk, it went ahead and is now coming on stream just when it is most needed.
It will be the same story for the A380 aircraft. Emirates Airline is very short of capacity on some routes already and delivery delays have made this worse. But as other carriers get into deep financial trouble next year and cut flights, Emirates will be in a position to take their slots with the most economically efficient fleet in the sky.
So perhaps Arab investors who are selling in global financial markets, or those who wisely sold early and went into cash, will actually be well rewarded if they choose to back Dubai in its mega projects.
Investing into the international city of the region that has the right critical mass and dynamic leadership to grow bigger and faster than its competitors might make a good deal of sense. But it is probably too early for investors entering a market about to undergo a bull market correction. Governments can afford to take a lead but others will follow later.
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While I make no secret of my admiration for the Dubai Government’s bravado, I have to report that off plan sales at Cityscape Dubai did not look promising during my inspection of the event today. I know actual sales are not allowed but all I saw were sales people standing around and no sign of serious enquiries. Hardly surprising given the plunges on global stock markets this week – it is a horrible time for investors.
Then I had lunch with three executives all currently selling property, without success. The one with the Dubai Marina apartment was told by his agent today that there are no buyers now. The one trying to sell in the Dubai Downtown has no offers in a month. Only the guy selling a Meadows villa has serious enquiries.
Back in the day, you could list a property at breakfast and have a buyer by lunch, well its not like that THIS SUMMER, but welcome to reality. When the Dubai property market survives this global collapse, people will realize, it was the best market and investment in the world.
Id rather have my cash in the palm or similar then in any major bank. In the short term weak investors will be shaken out but in the medium, can u really believe the palm will be below 2000 aed psf or that completed property with a 9% tax free yield can collapse in value?
Maybe, but i don’t think so. During the last 3 years there was a massive transfer of wealth from non oil producing countries to oil producing countries, confidence maybe low now but where will the invest – in themselves…. We hope:)
Plus your not in the Dollar…. if dooms day arrives, it will be nice not to be in a major currency….
Well the shake-out in Dubai from the heights reached recently is obviously going to be dramatic. Off plan sales almost died last week at Cityscape – who but a fool or very naive person would buy property futures in the current climate? The market for luxury apartments is also dead – just ask an agent. Partly-paid is also in deep trouble – who would want to buy part of a property and be responsible for paying the full price with prices falling?
As for not being in the dollar, ‘Hello’, the dirham is the dollar. It is one currency. Actually that is the only saving grace: the dollar is undergoing a massive rally – and that might just offset the falling value of property here for many buyers in the UK and Europe.
It is true that property in the best locations – particularly villas in short supply – are the best defended against price falls. But you should not bury your head in the sand and try to pretend that Wall Street did not crash last week – it did and that changes the outlook for all investments, even Dubai property.
The best action is to hold on – the market is now illiquid so there is no alternative. Dubai should now have a market shake-out and correction, and in the medium term property will again be a good investment.
Rents will fall as people leave Dubai as businesses (real estate, construction, banking) contract. People with Palm properties may need to sell them to cover losses elsewhere. This will be a bumpy ride. But I think Dubai is a winner – although it may not feel like that for a while. Just ask a local stock market investor!
I find Dubai fascinating. It’s all one big gamble though, as it appears to be built on nothing. It will be interesting to see what happens in fifty years time when all the oil is long gone.
The UAE has 150 year of oil reserves, Dubai is almost out now – but having Abu Dhabi as a neighbor is going to keep Dubai in business for many moons. There is also Saudi Arabia and the other Gulf States for whom Dubai is a service, trade and finance center. Dubai has been building while others have been thinking about it – now it might be too late to catch up and there is less money available.
So true….