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Crisis in Dubai: Is there a silver lining?

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.

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December 23, 2008 10:37 by



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.”



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16 Comments

  1. Ben on December 23, 2008 12:49 pm

    ‘Phantasmagorical’ is a great word. I had never heard it before and just discovered its meaning online. It is certainly very apt when describing some of the Dubai projects.

     
  2. dubai resident on December 23, 2008 3:40 pm

    Dubai needs to respect the foreign investors.Its time dubai changed its attitude towards the foreign investors rights, imagine a place where you could be arrested at anytime and be deported for no reason. Thats dubai. Human Rights does not exist with the dubai state security dept at the dubai police general headquarters, being used as a tool to serve the commercial benefits of the influential locals…. corruption is what dubaiis really made of.

     
  3. disappointed Old German Investor on December 23, 2008 10:31 pm

    you bring it to the point and its true ……Most people in Dubai know at least one person who’s been burned by the property market !
    Since our off-plan purchase in October 2005 we have to bear a nightmare ….and we will never get the apartment we bought and paid for. A lawyer, 100 sheets of written letters, fax and emails , mostly with no response, RERA show no action but telling a lot in the press they do…and at least you be adviced to file a case at the court, knowing that this a long expensive way and that the most of investors will not go this way by all the depression they caused them in the past years. This tactik and many other practice all involved has played together, this has destroyed the confidence in the property market of Dubai.

     
  4. rex on December 24, 2008 7:57 am

    To Mr. Dubai resident:
    Your comment is extremely unfair to Dubai. Im a UAE resident since 30 years and have never been arrested or deported, certainly not “for no reason”, and I have never heard of anyone having been arrested or deported for no reason. Human rights in the UAE may not be entirely up to the standard of western countries, but its certainly better then a number of other countries. At least the law works here, although true, the laws can be changed frequently, which is normal and healthy for a fast developing country. Although the local system of sponsorships and commissions looks very much like corruption, technically it is not as it is instituted by the law.
    Concluding, you might not agree to the laws or legal system here, but as long as you comply with it there is no truth in your comment that Dubai is made of corruption or that this is a lawless country where human rights are not respected. But if anyone does not respect human rights here it usually are the (3rd world country) residents and managers of large companies who do not pay salaries to their compatriot workers. Besides, UAE has a very simple policy for foreigners:
    If you dont like it here just get out and go back to your home country, and sulk there about the high taxes and low salaries and corruption.

     
  5. Kevin on December 24, 2008 8:20 am

    Its an interesting article. I always believed that Dubai has been branded and marketed very well to the world. But the contents were not in tune.Hence lot of interest was generated and attracted speculators who were not really interested in the strong growth of the emirate but just out to make a quick buck. This had to fail in time.

    Well the recession should bring home the point that one should realise the real assets, namely the residents who toil and make the emirate run. Sky rocketing rents, prices of commodities and housing served very few and mainly speculators who ruined the fnancial markets. Hence you see the sudden colapse.

    If housing projects were made for the vast majority of peace loving residents , they would afford the luxury of having their families staying with them and hence help the economy by spending locally.A happy population means growth and prosperity.

    A very serious thought should be given to the wrong advices and direction taken so far. Its a silver lining in terms of an opportunity to pause and to take stock of what went wrong? Equitable distribution of wealth should be the mantra where the race to prosperiety being ensured for the long term.

     
  6. abu Vasco on December 24, 2008 9:32 am

    Dubai has perfectly understood the sense of the Levantine concept of “Tafnis”…

     
  7. Support to Rex's Response on December 24, 2008 10:03 am

    I totally agree with your response to Mr. Dubai Resident comment on this country.

    I as well have lived here for a very long time (about 23years infact) and Dubai has definitely changed a lot over the past 10years and has done wonders marketing their name globally. I remember the days when other countries did not even hear or even know of the UAE. Now when you look at where to invest globally, Dubai – UAE is your best bet for many reasons.

    Which country doesn’t have Corruption?! but what we should look at is the weightage compared to the other countries.

    Dubai and the UAE will pull through and even at a faster pace than we expect if investors/people stop panicking and removing all their assets. This will not help the country.

    In conclusion as Rex said;
    “If you dont like it here just get out and go back to your home country, and sulk there about the high taxes and low salaries and corruption.”

     
  8. Manto on December 24, 2008 10:39 am

    To Alex,

    Just because nothing has happened to you does not mean anything. Can you please tell me how long the authorities can hold someone without charge? How long before they have a trial? Basic rights are completely nonexistent for nonresidents unlucky enough to be “suspected” of anything. There is no concept of innocent until proven guilty – unless of course you believe the authorities never make a mistake.

    On the property market – two things are becoming apparent – one the Dubai govt has no money – they have borrowed way too much and unless bailed out by the “real money” next door they will default and two, there are way too many houses, apts in Dubai!! There is no silver lining, the crash in Dubai will be far worse than other places because as people get laid off they will return to their native countries only worsening the situation.

     
  9. Resident on December 24, 2008 1:12 pm

    Dubai has been a phenomena of where the development can reach with proper planning, Dubai has nothing but few brains and a good location, they managed to sell the dunes and sea water for record high prices, that’s one for them, and the people who got financially impacted due to over expectations were driven by the greed to gain the max with minimum effort, well logically that’s not possible, would anyone blame Dubai for not stopping the flowing liquidity pour into its market? same investors who lost millions made others in the same market, the fact remains it is sill a nice tax free high pay place to live in,

     
  10. omar on December 24, 2008 1:20 pm

    Dear all

    Nice , straight and honest article.
    Going beyond the dreams should have dues.
    But let us be hopeful in next business cycle. I do not expect the artificial prices will come back but at least the prices will come back to its reasonable justifiable levels .
    Human greadness and the Arabic reactive management made this problem which i pray to Allah to help us to exit it.

     
  11. rex on December 31, 2008 1:11 pm

    To disappointed Old German Investor
    Awww…I feel so sorry for you, I hardly could hold my tears. What did you buy ? “Off plan” means a paper…Well bravo to the developers that can sell a piece of drawing for good money to “investors”. Normally people buy a house to live in , but now you want to sell it ? You never meant to buy it to live in sir, so you are not a productive investor but a speculator. You might probably know that speculators all over the world can make good profits but but forgot that they can also loose money. This has nothing to do with Dubai and could as well be the case in Las Vegas or Timbouktou. The real silver lining for Dubai is that this recession enables it to get rid of non-productive speculators who, as parasites, endanger a society driving prices up to unrealistic heights, making life miserable for more productive residents. Please leave your Lamborghini, bought with financing, in the Dubai airport parking lot with the key in it before you go.

     
  12. Old German Investor on January 1, 2009 7:07 pm

    Dear Rex,
    your comment is typical. You are wrong , we are not from the dubai property paker connection, we are people who realy wished to have a long term holiday base in dubai. We also have been frequent tourist since 1998, and we bought at 100 % government owned Nakheel.
    So, such comments like yours , shows like inrespectable the view in Dubai to 100 % long term willing investors.

     
  13. Soon to move to Dubai on January 18, 2009 9:49 pm

    I have been ordered to move to our regional office in Dubai and i want insiders to advise whether its a good step or not. I work for an international company and based in one of the Gulf countries at the moment. My relocation will not include a raise and i will have to adapt to Dubai’s way of living with the same package i am now getting…
    Thanks for your responses

     
  14. cascades 007 on January 19, 2009 10:28 am

    a property market fueled by off plan sales was destined to collapse as many of the properties would never get built. if one is looking to live in dubai it is like anywhere in the world, see your property before you buy.
    no other magic works.

     
  15. MARCO on February 17, 2009 1:02 pm

    honest article . 10 years iam listing from these invistors they are say ing we will leave DUBAI why the are not leaved ? . DUBAI invisting system most succissful system in the world .

     
  16. Ross Wolf on November 29, 2009 3:42 pm

    Dubai is suffering from a catastrophic property slump. But more importantly, House Democrats won’t discuss the economic damage Forced Health Insurance Costs Will Cause the U.S. Real Estate Industry.

    Obama asserts he wants to prevent foreclosures. But Senator Reid’s Forced Health Insurance bill, fails to consider that annual costs of Forced Health Insurance will disqualify millions of home buyer mortgage applicants, needed to support selling prices and home values. It is foreseeable those costs will cause home buyers to qualify for smaller mortgages. Obama appears unconcerned mandated health insurance costs will disqualify middle class home buyers that support the housing market, that secure trillions in mortgages held by U.S. banks. For many, forced health insurance costs may equal their paid Income Tax increasing the risks of mortgage default. Homeowners who can’t afford health insurance or opt-out penalties, IRS can file liens destroying their credit; families deemed not poor by Government for subsidized insurance, may have to sell their homes or borrow money to buy health insurance or pay Opt-Out penalties with money needed for medical expenses.

    Falling home prices and values continue to lower property taxes, forcing local governments to layoff workers and ask federal agencies for money; increasing federal deficits. Historically dropping home values cause unemployment in real estate industries, e.g. construction and manufacturing.

     

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