Has Dubai had it’s day?
Our resident columnist delves into the heady world of record-breaking builds and budgets of the Middle East metropolis
For a long time Dubai seemed to be the Promised Land for property developers; a place where nothing was too big, too expensive or too ambitious, where anyone with ambition could make money amidst the arid desert sands.
In three decades, the Emirate transformed from a Middle Eastern sea-port into a booming desert metropolis, boasting the world’s biggest, most expensive and most luxurious buildings, as well as its wealthiest expats knocking back drinks in the region’s swankiest bars.
It was to the credit of Dubai’s rulers that they didn’t sit back on their oil reserves back in the 1970s, instead deciding to diversify the economy into tourism and financial services. But as the population of the Emirate grew it was real estate that became Dubai’s biggest earner, contributing more than 20% to GDP in 2005 and continuing to be a dominant force well into 2008, when the rest of the world was rocked by financial uncertainty.
And then Dubai began to crumble. Expats started losing their jobs, drills fell silent and construction projects were halted. The last 12 months have seen bailouts follow resignations and a 50% slump in property prices across the Emirate. Dubai’s state-owned construction company, Dubai World, recently admitted to having US$60 billion of debts on its books, and last month the company came within hours of an embarrassing fire sale of some of its most prized assets.
A report in September by real estate consultancy firm Prolead discovered that of the 1,500 ongoing development projects in Dubai worth over US$10 million, more than one third had been put on hold or cancelled. At Cityscape – the Emirate’s annual property expo – attendance was down 30% on 2008. At the end of 2009, it seems that Dubai has hit rock bottom.
And let’s face it, for those of us on the outside, there has been something strangely compelling about it all. The Emirate’s insane rate of development over the past decade was never sustainable, and their “ignore it and it’ll go away” mentality to the global recession was shortsighted, if not staggeringly arrogant. Perhaps the crash is a case of the chickens coming home to roost.
Or perhaps it’s a new dawn. Even with their build, build, build mentality, ambition was never the problem for Dubai’s developers; it was their supreme lack of realism in thinking that investors would throw money at any project that had a superlative in its brief. As well as some seriously unlucky timing.
Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum has admitted as much, claiming in an interview last month that in the aftermath of the economic crisis, the Emirate would be studying the ‘viability’ of projects more closely. Sheik Mohammed, like many others in Dubai, realises that in their ever-increasing scope and size, development projects got a little out of hand.
So in 2010 and beyond, maybe the fall of Dubai will turn out to be a good thing for the real estate industry, and the Emirate’s economy as a whole. In the future, developers will not be so reckless in drawing up vast, unrealistic and above all, insanely expensive schemes, and investors will think twice before putting their cash into off-plan real estate. With the financial crisis easing off, and property prices widely believed to have bottomed out in Dubai, it will not be long before expatriates return and shrewd investors move in. Then, no doubt, the cycle will start again, except this time; hopefully, everybody will have learned a few lessons.