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Crisis in Dubai: Is there a silver lining?
Dubai is struggling with the global financial crisis, and the panic among investors is damaging an already fragile market. But there could be a silver lining to this mayhem.
December 23, 2008 10:37 by Dana El Baltaji
The world’s wondering if Dubai has run its course. Last week Newsweek ran with a cover package on Dubai entitled “Is Dubai’s Party Over?”
It’s exactly what Dubai’s been dreading. Negative coverage is one thing, but doubting the emirate’s sustainability is another. And while the emirate’s viability has already been questioned – mainly due to the phantasmagorical projects being developed in Dubai – this time it’s different. This time, both small and big investors have stories to tell about how they poured money into a ‘visionary’ emirate, and paid the price for it. And they’re telling the world press about it.
For example, the Newsweek article features a businessman who is desperate to sell his villa on the Palm Jumeirah. He dropped his asking price from $4.9 million to $3.6 million, then to $3.13 million and threw in his Bentley. No one bought it.
There are other stories. Most people in Dubai know at least one person who’s either been burned by the property market or has been fired. Kipp even heard rumors of people who drove to the airport, parked their cars in the long-term parking and left the country for good. The stories may be rumors, but they’re indicative of the mood among expatriates.
The fact is every nation and city-state in the world – with the exception of those insulated by enormous wealth like Abu Dhabi and Saudi Arabia – has been affected. If Dubai hadn’t been insulated by its own reserves and Abu Dhabi’s wealth, the effect of the financial crisis would have been much worse.
And while the crisis may have cracked Dubai’s pristine image today, Professor Ludo Van der Heyden, a professor at INSEAD, a leading business school, thinks it may help the emirate’s long term image, provided government officials and businessmen seize the opportunity: “I would say that for Dubai and Abu Dhabi the crisis is actually good because it gives them a warning to not go where the Americans have gone, which is to push for products that make no sense.”
“[The emirates] are still in the early development. And they have so many new businesses that they don’t need to repackage things to look pretty, [like the Americans did],” he adds.
The problem, however, is that investors are panicking. And their struggle to remove their assets from Dubai’s markets has resulted in a staggering crash. As for those who have lost their jobs, the government has informed them they can go the nearest ‘competent’ court to apply for bankruptcy.
But according to Professor Van der Heyden, if you can hold on for a while and keep making your payments for the next 12-18 months, you’ll be fine: “The good news is that recessions are not typically long lasting,” he says.
The same goes for Dubai. If the government and business heads can keep the economy stable for next 18 months, then, according to the professor, the emirate will come out stronger than it was when it stumbled into the crisis: “I think there is enough money here in the hands of the government and the ruling parties to support businesses for the next 12-18 months.
“Dubai would be very mistaken to completely change course [with its businesses and developments] because of the world crises. That would create a lot of problems.
“I think the UAE can take advantage of the crisis if they show a steady hand in the midst of the crisis, especially because people are saying that it’s a dream, it’s artificial, it’s not a real economy and it’s going to crash. If they can hold the economy together and keep planning ahead at a slightly slower pace, they will come out in better shape.”