$400m skyscraper goes ahead, is Dubai nuts?
Posted on 06 September 2009 with no comments from readers
News that the $400 million Pentominium skyscraper contract has been awarded in Dubai dominates the headlines today.
Privately held Trident Holdings has secured the backing of the state-owned Islamic bank Noor to build what will be the tallest residential building in the world in the Dubai Marina, with completion in 48 months.
Each apartment will take one or half a floor of the 120-storey skyscraper that will soar 618 metres above Dubai. Trident is an international property developer originally from Hong Kong and has delivered four out of six towers already announced, with the fifth on schedule for delivery by the end of 2010.
High-rise Dubai
According to Gulf News citing local sources, Dubai has 390 completed high-rise buildings and 321 under construction, and 551 in the planning stage. The newspaper says Dubai is expected to have more towers of above 100 storeys than any other city in the world by 2015.
Is this complete madness in the middle of the worst global recession since the 1930s? It is certainly remarkable that so much building is still going on in Dubai and that a major project like the Pentominium can go ahead at this time; a similar super-tall tower in Chicago is now on hold.
The Noor Bank is clearly acting under the highest authority in supporting this venture, and it would not be able to go ahead without Islamic finance in place. It is therefore something of a statement of government policy even if it is a private sector project.
Peak oil
However, the developers are looking two years into the future and gambling on the future of Dubai as a hub for Middle East business, finance and trade. Perhaps this is also a new niche market: homes for the super rich escaping the high tax regimes of the new global economy. It is hardly a question of housing for the average expatriate.
On the other hand, if you look a few years down the road then it is hard to be gloomy about the future of Dubai. Peak oil theory suggests very much higher oil prices are coming as the world recovers from recession. There simply will not be enough oil supply to meet demand. Dubai benefited hugely from the oil boom of the 2000s and will also benefit from the next oil boom.
The problem is surely the period before those happy days return. At present there is some optimism in world financial markets about an early economic recovery, sadly something that few business people who know about these things appear to share.
Business reality
All over the world business revenues have fallen badly alongside the unprecedented slump in global trade and profits have only been maintained by massive cost cutting – mainly in the form of job cuts. But there is nothing in the pipeline yet to produce a recovery in spending by the consumers who drive global economies.
They are afraid of unemployment or suffering from it, and have started saving again. They are also unwilling or unable to start borrowing for consumption. There is also the small matter of huge outstanding debts in many economies, and all the money that governments are now borrowing or printing to halt the recession.
In this environment a global economic recovery is not only likely to be slow, but what we are seeing now is going to prove a false dawn. Debts will have to be repaid, taxes raised and government spending cut.
The very modest up tick in GDP happening now is no compensation for the enormous GDP falls of the recession, and as the government stimulus plans fade a shift back into recession looks unavoidable. Stock markets will shortly wake up and realize this and crash again.
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Well, the Empire State Building was built during the Great Depression. Cost $40M at the time, now worth around one billion.
UAE has incredible oil wealth and very low debt and taxes, a winning combination for certain.
Peak oil on the other hand is certifiable poppycock, with all due respect. There just is no peak if you look at the actual data.
The fact is there are massive oil fields that are not being exploited properly due to the fact that they’re controlled by socialists and Communists. Would you invest your own money in a Venezuelan oil project? How about Iranian, Russian or Sudanese?
An economy cannot function properly without the rule of law and respect for property rights.
What we have actually seen is peak debt, at least for a time, which temporarily creates the appearance of commodity shortages due to the debt induced economic boom/buuble.
Now you have massive surplus of hydrocarbons, tons of oil floating around on tankers with no buyers. Peak oil? Quelle farce.
Ed Note: UK is certainly running out of oil now. But I agree the immediate outlook is a retesting of oil lows – there is a massive recession after all!
I recommend an obscure but very enlightening text, Oil Trade: Politics and Prospects by J. E. Hartshorn. From Amazon:
“It is concerned with a central unchanged paradox of the industry–its preoccupation with maximizing the production of high-cost rather than low-cost oil.”
North Sea oil is simply not economical in the same way that Saudi oil is. Looking at a tiny geographical area off the coast of Europe/UK doesn’t tell you anything about world oil production.
The reason Westerners hyperfocus on the oil within our territories is that its safe to drill there. The good stuff is more often than not located in unstable areas.
We don’t judge world mango production by how many mangos are grown in the UK either.