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Do you believe the Dubai story?

Do you believe the Dubai story?

The chairman of HSBC in the Middle East said Dubai’s multi-billion dollar debt is reasonable, and that “if you believe the Middle East story, you have to believe the Dubai story.” Kipp’s not sure what to believe.

October 8, 2009 4:18 by

We’ve heard economist describe Dubai’s debt as reckless, irresponsible and vast, but we’ve never heard anyone say it’s “reasonable.”

Youssef Nasr, chairman of HSBC Bank Middle East Ltd., told newswire Bloomberg on Thursday that given the size and growth rate of Dubai’s economy, the debt is “reasonable.”

“If you believe the Middle East story, you have to believe the Dubai story,” he said. However, the market needs to address the “temporary mismatches in supply and demand.”

Dubai’s debts, which EFG-Hermes claims is at least $84.7 billion in spite of the government’s estimate of $80 billion, have made headlines worldwide and prompted a significant drop in investor confidence in the emirate’s key industries, including real estate.

However, Dubai’s Ruler, Sheikh Mohammed bin Rashid Al Maktoum, insists the government will repay its debts, including the $4.52 billion debt due this quarter.

“I assure you we are alright, the UAE is alright, and we are not worried,” Sheikh Mohammed said at his Zabeel palace in Dubai in September, when reporters asked if Dubai will meet its financial commitments this year.

The government has already sold half of a $20 billion bond to the UAE Central Bank to raise capital for distressed state-owned companies. It plans to launch the remaining $10 billion soon.

Until then, however, Dubai’s industries continue to slump. This year’s Cityscape exhibition was a lackluster event compared to previous years. The exhibition was 30 percent smaller than last year’s, and it reportedly received only half of 2008’s visitors.

Investors’ lack of confidence in Dubai’s story has dragged property prices to 2006 levels, according to a study by Landmark Advisory. Apartment prices fell by 3 percent during the third quarter of 2009, bringing the overall drop in prices to 38 percent since the market’s peak in 2008.

And given that another 20,000 residential units are expected to flood Dubai’s property market in 2009 (according to estimates by Jones Lang Lasalle, bringing to total number of residential stock in the emirate to 276,000, it is unlikely that real estate prices will rise.

It is difficult to keep believing in the Dubai story when its key industries continue to slide. However, investors cannot deny that while Dubai has over-stretched itself considerably, it has the capacity to turn itself around. The question is when.

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  1. Soniya K on October 10, 2009 9:25 am

    Undoubtedly Dubai is facing one of the worst downtrend. But the very cyclic nature of economies allocates for such swings. What goes up –and at nanosecond speed- always comes down with a crash. The percentages cited are indeed astronomical by any standards. With the lack of balance between supply and demand, especially with more units coming onto the market- Dubai hasn’t seen the bottom just yet- I agree
    But, I must be missing something. Its not just Dubai but the global economy that is going through a serious upheaval and equations will certainly change. And yes, though it does bode heavily on countries that have outgoing payments, why single out Sheikh Mohamed. Other economies have borrowed far greater. Watching this visionary leader’s commitments over the past twenty years has given me faith he will make good of his debts and show recovery, slow but steady.
    Local trading is already up, it’s not as though all business in Dubai was based around the property boom and the businesses with a healthy mix of portfolios will see recovery sooner than others. With regards investor confidence, a lot can be said about the choices made by Sheikh Mohammed, but even more, I question the vision and integrity of the Abu Dhabi Rulers.
    Did Abu Dhabi truly think that if Dubai is burning, its neighbour wouldn’t find embers blowing in their direction? Dubai is a brand; built beautifully, and when the investor confidence started getting shaky, it would have been worthy as leader of a country, with deep pockets, to have bought into this brand and nurtured it- as a country – as a whole –as UAE instead of disassociating itself with Dubai’s downturn and loosing investor confidence in the entire nation.
    A good economist, a recovery specialist, a great neighbour, some transparency in the financial markets, liberalization in banking systems, a new agenda in the residency visa, providing greater security to SME and Large Business, decent labour and employment laws may just be the calling card Dubai needs for a speedy recovery.

  2. HD on October 11, 2009 9:20 am

    Probably, instead of believing the Dubai story, one has to ask do you believe the UAE story? UAE is blessed from the day it was created with leaders who want to do something for their country, their people, and what to make the place as pleasant as possible for expatriates who make this country home. I hope you agree that this is a good start.

    UAE is blessed with natural resources that can keep the economy going and the currency strong for many years to come. Despite that, you find the leaders pursuing the development of the country as if oil will dry tomorrow. A race to build the highest tower and the best F1 track is much better for civilization than the race to build the strongest army.

    Yes, we need more transparency and need to address many other issues that are creating bad press, but these are measures that will accelerate recovery and help restore confidence, and that I am confident will come because if you were to bet all what you have on a country that is capable of fast reform, who would you bet on? I will bet on the UAE.

  3. Andrew on October 11, 2009 11:18 am

    The greatest cultures in history may commonly be remembered for what they built, but the societies they created are far more influential. Empires such as Rome bequeathed their Senate and legal system far more than the Ampitheatre, Circus Maximum … or even their military prowess, for that matter.

    When Dubai learns this lesson I’ll start believing in it.

  4. Natalya on October 12, 2009 7:05 am

    Why would UAE need an army? since it’s a colony.
    And why would it need educated people or scientist since UAE’s own people never were involved in the development of UAE that I wouldn’t call it UAE’s people own country.
    But the real estate debt is certainly UAE’s debt even though the petrol never been the country’s profit.

  5. DeniseTheMenace on October 12, 2009 12:28 pm

    @ Natalya — A Colony? How st….. can you get? Must be some god-forsaken eastern euro or Russian education system that gives this kind of adult as final product ( Its NOT a complement , execuse me!!)

    Enjoy your stay, though. And yes, keep the faith in your way of thinking….& Keep Smiling .

  6. Natalya on October 12, 2009 2:32 pm

    @DeniseTheMenace __ Then what do you call an Arab country that pays British people the most money and doesn’t have a single famous project run by Arabs unless it’s just un-functioning positions
    And UAE itself never had a scientist changed anything in History or anything in the present.
    Furthermore they never brought a new concept with their building or a new anything.. the biggest , the tallest,, ok so ? I don’t see any creativity.
    Forget all that and maybe I’m wrong .. but can you mention why Iraq, Lebanon, Syria, Palastine are suffering the war and they have much more treasures than UAE ? Why UAE wouldn’t suffer and it doesn’t even have army when it’s not giving anyone its petrol for free?
    Maybe the world biggest countries not really interested in UAE’s petrol quality!!!
    I advice you before calling people products do some brain exercising

  7. DeniseTheMenace on October 13, 2009 5:44 am

    To ALL READERS (except Natalya) – I have to rush to grab a bite. Can you guys handle this …I need to take this to a healthier level , so off I go…. Good riddance, Isn;t it ?
    Keep Smiling All ( incld. the exceptions…)

  8. Mohammad on October 15, 2009 9:35 am

    I would be more concerned with my own education if I didnt know the difference between complement and compliment, and if I spelled excuse as I (probably) pronounce it


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