Dubai Booms

Dubai Rides the Oil Boom, writes US News & World Report. It is a long read and quite interesting, even for those who are already familiar with the many Dubai clichés.

Dubai's iconic sail-shaped Burj Al Arab hotel..., the article begins in rather predictable tones. However, it goes on to cover a broader scope of topics, skirts the anti-cliché of Dubai as poster child for labor exploitation and offers some fresh commentary. Below is my selection of the more interesting comments:

1. ...beneath the one-upmanship, there is a far more serious transformation, one that is turning Dubai into the business, financial, and perhaps tourist center of a newly invigorated Persian Gulf region.
   
   
2. Indeed, this unprecedented wealth transfer is starting to rewrite the fundamental balance of power in the world economy...
   
   
3. Dubai has successfully turned itself into a post-oil economy that feeds in part on the oil wealth of its neighbors, who have been happily investing in the city's red-hot real estate market.
   
   
4. Dubai's ruler, Sheik Mohammed bin Rashid al-Maktoum, has set out a vision for something that has never been done before—building a world-class city on a par with New York or Hong Kong...
   
   
5. "There is a lot of glitz and glamor, but the core element of Dubai's development plan has always been infrastructure," says Aamir Rehman, author of Dubai & Co.: Global Strategies for Doing Business in the Gulf States.
   
   
6. "If you take 1 percent of the wealthiest cream of the crop, that's 10 million people worth at least $5 to $10 million," says Frank Khoie, a property developer. "They can leave their countries, which are not clean, organized, and safe, and come to a new America—the UAE.
   
   
7. "People keep coming here, but after six months, they are tired of the life," he says. "If you have money, this country is for you. If you don't have money, you cannot have a good life."
   
   
8. Dubai's laborers could be vulnerable to radicalization, and there is also the risk of homegrown extremism. "Terrorism is the big elephant in the room that no one wants to discuss," says Christopher Davidson, a professor at Britain's Durham University...
   
   
9. Dubai has managed to shrug off most of the traditional factors that held other regional economies back—inept bureaucracies, suffocating state control, bans on foreign ownership of land or companies, and prohibitions on nightclubs or liquor.
   
   
10. Dubai has always welcomed outsiders, says Sheika Lubna al Qasimi, the UAE minister of foreign trade. "Here, you have an environment built for them,"...

What these statements suggest is that what is happening in Dubai is highly significant, not simply a curious oddity of flash and excess. The phenomenon of Dubai is an essential part of a major transformation taking place in the global economic equation. It is not simply a matter of expensive oil and booming real estate activity. There is something more fundamental at play, and it is that which fuels Dubai's expansion, not oil profits or real estate speculation.

...the core element of Dubai's development plan has always been infrastructure.

This, along with an incredible openness to taking input from outsiders at all levels, is key to what is happening in Dubai. Huge shipping ports, huge airports, massive investments in road and bridge construction, a new metro being constructed in record time, waterways being dug up through the desert... Dubai, post 1970, has never hesitated with regard to infrastructure development.

Dubai is, even its tiny geographical scope, not so dissimilar from China and India as a new, powerful force behind the economic activity which will in effect define the world's 21st century economy. In this sense comparisons to New York and Hong Kong are in order. One may wonder what happens when the price of oil declines or the real estate bubble bursts. But one must understand further that there is not likely to be any reduction in economic growth in the world's two largest emerging economies, China and India. It is not this that the high oil price feeds, and the wealth from it which pours into Dubai and the Gulf will continue to fuel both an investment and population boom which should continue to support growth in real estate development.

In any event, Dubai is not a single or double industry success story. It has emerged as a highly diversified economy--somewhat like the US, albeit on a much smaller scale. Today, its key industries are trade, shipping and transport, oil (as a recipient of oil wealth investment), tourism, construction and real estate, gold and commodities and retail sales. It is rapidly expanding into numerous other industries including media, production and publishing, health care, education, etc. Left on the horizon are industries like manufacturing (let's not be surprised to hear someday of Dubai's venture into automobile or aircraft manufacturing), nuclear energy production, space tourism, marine engineering, etc.

Perhaps a bit of fantasy has taken over the better part of my imagination when it comes to what Dubai is able to achieve, however, if there were ever any place at anytime that had the potential to do all these things, Dubai stands as perhaps the best candidate in the 21st century, alongside much larger India and China.

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Storm Clouds Ahead?

Storms are unusually what characterized life in the UAE for what seemed like an endless week in January 2008. Rains that lasted days, like an Asian monsoon, left streets and neighborhoods flooded and lots of trauma for drivers.


Incredible image of recently constructed Dubai Marina.

This recent report (21 Jan 08) from the online news source AME Info, could lead to trauma in the real estate and construction industry if it turns out to be true:

40% or Dhs587.7bn ($160bn) of the current Dhs1.5tr ($400 billion) worth of real-estate projects in Dubai have been 'temporarily suspended' due to defaults in payment for core building materials which are soaring in price, reported Khaleej Times.

The report is brief and its threatening forecast is attributed to the CEO of a Riyad based property investor.

"Is this anyone in the know," is one thought that comes to mind. If it were in any way true it could spell disaster in an industry that is already plagued by what seems like incessant delays. On the other hand, a glass half full perspective might reason that it is simply more of the same rather than a looming disaster.

The report, in fact, seems incredulous for more than reason of its source. 40% of projects have been "recently suspended." Suspended by whom? Is there a government regulatory agent in Dubai which summarily suspends projects? True, a large percentage of construction projects--perhaps over 50%--are in fact government sourced. Therefore, such a suspension may not be out of the realm of possibility.

In any event, such a pronouncement will need to be echoed by other, hopefully more established voices before gaining credence. If, on the other hand, weeks and months pass and the current level of project delays significantly increases, then this traumatic warning will have been bourne out. I, for one, as a property investor, will be scanning the news with fingers crossed.

Postcript:


Photos found at Skyscrapercity.com, attribution unspecified.

One must wonder, if the Riyad investor's warning has credence, how this relates to RERA, Dubai's new Real Estate Regulatory Authority. RERA has made it a requirement, as of year-end 2007, that developers place payments received for off-plan or U/C properties into escrow accounts. This will have certainly impacted the cash flow of most developers. Could this not be a major if not the critical contributing factor to the crises described in the report? If so, as needed as the RERA development has been (it provides badly needed protection to investors, whose payments were otherwise not guaranteed), the timing of its implementation may turn out to have been counterproductive, if not disastrous.

Similarly, the government's issuance of a much needed amnesty law in 2007, which afforded many construction laborers the chance to return to their countries of origin free of retribution for visa overstays, had the counter-productive effect of removing critical work forces from a large number of projects under-construction. Certainly, this was the right thing to do by the laborers and for the country and industry-at-large, but the problem may have been in the timing.

More detailed version of the article linked to above.

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The Closer You Get, the Further Away the Target Moves

The building boom ever goes on... Dubai Marina, 11/2008.

It would almost seem to be a truism in UAE off-plan property purchases, that the longer one waits for a project to complete the longer yet one still must wait. On a tower project, for example, 30, 40, 50... 100+ stories or so, the projected completion date on launch is invariably 2 to 2 1/2 years off. In reality, these towers are taking on average 5 years to complete. So, at launch with money down, the buyer is given a 2 1/2 year projected completion date. One year lapses and construction on the project has barely even commenced.

A bit of realism begins to set in. The newly projected completion date is extended by a year. So, after a year of waiting and having paid 40% of the purchase price, one still has 2 1/2 years to go.


A project that defies the norm: quickly rising Dubai Marina Mall & Hotel complex, 11/2007.

Another year on and work has begun. The tower has just reached ground level, after a year of descent as a deep pit is dug and then painstakingly built up with the basement/podium structure. A renewed sense of realism sets in and so another year gets added to the waiting game. You'd be back to where you were on day one with 2 and 1/2 years to go, but experience by now informs you that another year never means another year only.

You prudently add six months to the calculation. So now, two years on from launch, by which time you've paid 80% of the purchase price, you realize that you in fact have 3 more years to go. The waiting game has gotten ever longer with the passage of time.

Real Case Scenario


The 64-story MAG 218 tower, exemplary of the ever-receding completion date, 11/2007.

I offer support to the scenario presented above with my own case in point. In June 2005 I lay out my 10% deposit on a property launched in April of that year and due for a mid-2008 completion--a 3-year projection. By June 2006 work is ongoing on excavation of a pit, but the project is clearly behind schedule. By November 2006 a revised completion date of mid 2009 is announced.

As the second year since initial payment sets in, June 2007, the completion is still 2 years off--although two years of a 3-year projected schedule has already lapsed. A couple of months later another set-back occurs and by December 2007 another six months is added to the projected completion date, now up to the end of 2009. My better sense tells me that this is clearly on a mid-2010 footing. The current tally for me 2 and 1/2 years on and 70% down since an initial down-payment, it is still a completion date 2 and 1/2 years off.

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