Investments

The world’s luxury property markets have taken a massive hit lately due to the economic downturn and financial global crisis and none more so than Dubai - the once home to the Miracle Boom.

Lately, Morgan Stanley has come out with some very dire predictions on Dubai claiming that “”it is worse than expected”" - this post looks into their arguments and where they have these from.

The Luxury Property Blog reorts :

The latest Morgan Stanley UAE property sector report is out and is not pretty reading. “Fallen off a cliff,” and “Worse than expected,” are not words one usually associates with the Dubai luxury market. So if Morgan Stanley have come clean, it might actually be accurate. The issue with Dubai is always lack of transparency and even MS are resorting to “anecdotal evidence,” of which there is no shortage.

Around $263 billion worth of real estate projects have been delayed or canceled as the UAE’s property sector is dealt a “worse than expected” blow by the global financial crisis, according to their report.

HSBC research reported recently that cancellations had reached $75 billion in Dubai alone, but a Morgan Stanley spokesperson said HSBC had failed to include three further large projects in its assessment.

The author of the blog does emphasize what this blogger has also personally witnessed lately namely that most of the information on Dubai and its troubled real estate sector is indeed anecdotal and not factual though there is admittedly so much of it that one would believe that something is not right :

Some of the project cancellations that have been officially announced are Sunland Group’s $654 million Atrium project and the $790 million Trump Tower project by Nakheel on Palm Jumeirah. Prices are falling dramatically as the sector is hit by job losses and project delays. A few choice quotes:

“Real estate prices in UAE capital Abu Dhabi are down by an average of 20% since a peak last summer as the UAE’s property sector is hit particularly hard by the global economic situation.”

“Residential property prices in Dubai have also fallen, by 25% in the last 4 months alone, with high-end real estate units taking the biggest hit.”

“Since September, Dubai apartment prices have fallen 25% and villa prices are off 26%, “belying the argument of some developers about the price resilience of villas and low-rise building segment.”

“Anecdotal evidence suggests sharp falls in transaction volumes in the fourth quarter due to deteriorating economic conditions, the disappearance of speculative buying and the lack of financing.”

“Prices of high-end Dubai properties including those at the Burj Dubai development that includes the world’s tallest tower, which reached its final height last week, as well as the man-made Palm Jumeirah are down 35% since their peak”

Emaar Properties is likely to be the “worst affected” among Dubai developers by the sudden plunge in prices.

“We believe that Emaar runs a high risk of sales returns and defaults among its recent launches.”

“The company’s high-end developments, the Burj area and The Old Town, have taken the biggest hit since the peak.”

Many analysts are predicting further falls in prices in 2009 for luxury property in Dubai, Khajeel Times is suggesting 50%, The Global Financial house only 30%.

Gulf Times of Doha, Qatar reports that property investors have called on Dubai’s real estate watchdog to act quickly to avoid a “complete collapse” of the sector :

“”amid growing fears on the financial strength of some developers and their ability to deliver more than $1tn worth of projects. “”

The article goes on to suggest that The Dubai Property Investors Group wants the official Dubai real estate authority, RERA, to rid of the fly-by-night investors and bring some order to the sector :

The Dubai Property Investors Group, made up of more than 300 local and international investors, lawyers and real estate developers, has delivered a petition to Dubai’s Real Estate Regulatory Authority, or RERA, to urge the watchdog to clamp down after a slue of corruption scandals raised concerns over standards.
The group is targeting “fly-by-night developers” that aren’t able to deliver projects amid tightening liquidity and project financing, even though they’ve taken down payments from investors.
“Any measure short of announcing which developers are bankrupt will continue to let real estate prices free fall,” the petition seen by Zawya Dow Jones says. “We do not want to make any more payments until we have proof that the developers have the financial ability to deliver our units.”

Transparency is also something that is needed and demanded :

“Sentiment amongst real estate investors in Dubai is very poor right now,” said Eric Swats, a partner at Dubai-based investment bank Rasmala Investments. “RERA needs to be as transparent as it possibly can, but also to allow the market to adjust to the new realities as quickly as possible.”
Last week, a Morgan Stanley report said $263bn worth of the UAE’s $1.25tn construction projects have been delayed or canceled.
Separate research carried out by the Dubai-based market research firm Proleads said $582bn worth, or 45%, of the Emirates’ projects are currently on hold.
Sentiment has worsened since a spate of damaging real estate scandals that led to the arrest of several prominent executives in the industry over the last year in Dubai.

The article concludes through quotes that lack of real demand and huge over-supply are two of the worst enemies to bring the market back to parity :

In the petition, the investor group urges RERA to cancel more mega-projects such as the $110bn Dubailand development and Nakheel’s Waterfront “until real demand exists.”
It says with thousands of people leaving Dubai on a daily basis as financial and real estate firms lay people off, oversupply is a real concern. “Cancelling of projects will reduce supply, increasing prices, but more importantly will increase confidence in the emirate that government is prudent,” investors say.
The group is also concerned that some developers are abusing recently introduced laws, which say that all money deposited into escrow accounts must be used for construction.
They say some developers are “illegally siphoning money” from the accounts for administrative or marketing costs, or for land payments to master developers.
Investors add that the new interpretation of existing laws by RERA in November no longer protect them if they default on payments.
At one time, investors were entitled to a minimum of 70% of any money paid to a developer if they defaulted, but the group says RERA’s new interpretation of the law means the developer will keep 30% of the total contract value if an investor defaults.

Will Dubai get it right and rectify what is a potentially devastating situation for the once famed Miracle City, or instead keep, to a large extend, pretending that nothing is wrong and cannot be saved by improved market conditions, or will it in fact become a ghost town thanks to the exodus of expatriates and workers, or perhaps even be bailed out by an oil rich Big Brother from Abu Dhabi or Saudi Arabia ?

Time will show and options are plenty but it remains a fact that if Dubai wants to remain a point of attraction for private as well as institutional investors it has to act now and with full force and transparency.

How it all works, Middle East Business, Real Estate Investment Dubai real estate, Emaar, Luxury Real Estate, Morgan Stanley, Nakheel, RERA

In recent years, well almost a decade now, leading economists and financial analysts from all over the world have been amazed by what has been termed by many as The Dubai Miracle which tells a story of a city’s explosive and phenomenal growth and expansion, real estate projects on a scale that would be large even by US or Chinese standards and announcements of further growth and developmentsthat make even the most gung-ho developers dizzy.

Recently many of us thought we had it wrong when reading about the latest plans in Dubai to have one of its prime beaches cooled down artificially for the benefit of the guests at the hotel (read the full story on this here) but then again we are talking about Dubai - a place where everything seems to be possible.

Lately, however, Dubai has started to feel the effects of the major world financial crisis, despite strong government and semi-government statements from as recent as November (click here to read Mr Mohammad Al Abbar’s statement from November) refusing to agree that Dubai would be sucked into this global financial turmoil.

There are now clear signs that Dubai is beginning to suffer too, not least in its major real estate sector where most of the major projects are focused but also its tourism sector, and there are now many voices of concern and unhappiness emerging from consumers and investors alike not to mention the financial institutions who are heavily exposed in this massive project called Dubai.

This blog looks into some of the signs and concerns that are now facing Dubai and asks the questions whether the Dubai Miracle is coming to an end or if in fact they will somehow come through this crisis stronger and better than before.

The Wall Street Journal tells a story about Dubai lenders beginning to feel the squeeze as mortgage defaults by overstretched borrowers is now becoming common:

Borrowers are being squeezed by higher interest rates and job cuts by major employers hurt by the global financial crisis. Property developers also were affected Sunday as tumbling oil prices hurt sentiment, leading the region’s stock markets lower.

As borrowers run into trouble, officials at HSBC Holdings PLC, the largest international bank by assets offering mortgages in Dubai, told Zawya Dow Jones that the lender has been contacted by a growing number of customers in the emirate struggling to pay their home finance.

At Emirates NBD, the Gulf’s largest lender by assets, an official said the bank has witnessed “significant defaults from the speculative community.” However, the official wouldn’t disclose if the bank itself has been experiencing defaults.

The same article from WSJ goes on to point out that even though banks and lenders have the right to re-possess properties from clients if they default, there is no precedence for foreclosures in Dubai which could lead to additional worries and problems for the financial institutions who are heavily exposed in the property market:

Although new mortgage laws say banks are entitled to repossess a property if a borrower defaults on a mortgage for more than 60 days, experts said foreclosure may be a lot more difficult in practice.

“There is a mechanism in place for foreclosures, but it’s never been tested before,” said Charcol’s Mr. Dommett. “In practice, the process could take a very long time, and banks could be left with property on their books that they’re unable to sell.”

Local Dubai-based newspaper, Gulf News, tells a story on how several companies are now struggling for finance and credit and how they are trying to raise cash from investors:

Dubai-based property developer Union Properties said Monday that it wanted to issue up to Dh2.5 billion of convertible bonds, as securing project financing from banks had become difficult during the financial crisis. Convertible bonds allow investors who have lent money to companies to change the debt into shares in the business.

Also, Shuaa Capital, a leading regional investment bank said on Monday it would seek shareholder approval next month to extend the maturity of its convertible bonds.

“The signal is that they need cash. Banks will not give you cash now or they will do it with too many conditions. Selling bonds is a tool to get money and the strategic investor is entitled to an interest dividend of 6 or 7 per cent,” said Hamood Abdullah Al Yasi, general manager at Emirates International Securities on Monday.

 Meanwhile, and perhaps rather surprisingly amidst the majority of observers being quite possimistic about Dubai’s economic outlook, Swiss banking giant Credit Suisse has reiterated a positive outlook for Dubai’s troubled real estate sector as business daily Emirates Buisness 24/7 reports:

Swiss bank Credit Suisse has reiterated a positive outlook for the UAE property sector, as it believes that real estate market will recover quickly from the current turmoil due to the country’s solid macroeconomic fundamentals.

“As a result of a slowdown in economic growth and liquidity challenges in the GCC region, we downgrade our target prices for most real estate stocks in the UAE. However, we stay overweight on the sector as we believe the UAE real estate market will recover quickly from the current turmoil thanks to its solid macroeconomic fundamentals,” the bank said in a report titled “Emea Real Estate Outlook 2009.”

The article goes on to quote Credit Suisse for predicting that both the Dubai and Abu Dhabi governments will have the biggest effect on the future of the real estate sector:

The bank believes that there are three potential catalysts that should be monitored in the short term: Oil prices, which have a strong effect on the UAE’s liquidity and hence the real estate market. Any sign of upside in oil prices would be viewed as positive news; bringing the real estate sector under the umbrella of the federal government, which is dominated by Abu Dhabi, thus ensuring the availability of liquidity; and positive news about the condition of the real estate market in Dubai.

“We believe that the market is discounting most of the negative newsflow about the lack of funding, shortage of mortgage availability and the fact that Dubai is a highly leveraged market in a global credit crisis. In our view, it even assigns a zero value for some projects in the pipeline for some UAE developers. We expect that developers will cut supply as demand deteriorates as a result of negative sentiment and the shortage of liquidity, which will in turn affect their forward NAV as they sell fewer units than expected.”

The article goes on to quote Credit Suisse for saying that the governments must control and also cut the supply of real estate projects in order to avoid a collapse and get back on track:

Credit Suisse believe that cutting supply to keep a sustainable level of demand will not be enough without an effective solution for financing problems in the UAE, especially on the demand side.

“We think that the UAE federal government (through sovereign funds) will have to play an active role in providing financing for both home buyers and developers, as the financing situation, especially in Dubai, is currently under pressure.”

The old question of whether Abu Dhabi, which is where the Federal Government sits and also where 90%+ of all UAE’s oil revenue stems from, is truly committed to financing and underwrite Dubai’s massive real estate expansion, is also highlighted by Credit Suisse as a key factor to the recovery:

“We are confident that the Abu Dhabi government is still committed to financing development projects in the emirate and will provide the required support for those projects. However, we think the most important question is, will the federal government, which is dominated by Abu Dhabi, provide financial assistance to the real estate market in Dubai?

“We believe it is in the interests of the UAE that the Dubai market remains sustainable and think the federal government may step in to make sure that the real estate market in Dubai doesn’t go into a deep slump because of the current shortage in liquidity. However, it is difficult to determine the form of this involvement. We also believe that there is likely to be some sort of consolidation among developers in both emirates, thus bringing the sector under the umbrella of the federal government in the future,” Credit Suisse said.

What the next chapters in the Story of Dubai have to reveal only time will tell but it goes without saying that Dubai’s growth and expansion till date as spearheaded by its visionary ruler Sheikh Mohammed Bin Rashid Al Maktoum has been a truly amazing story to follow and whilst many analysts and economists now remain cautious if not pessimistic about Dubai’s future and ability to come through this current and deepening crisis unscathed, this author would not put it past Dubai to come out on top - once again.

This blog will continue to follow the ups and downs of Dubai to see where it all ends - or as it may be begins again.

Investment News, Investment opportunities, Middle East Business, Real Estate Investment Abu Dhabi, Credit Suisse, Dubai, Dubai real estate, Financial crisis, UAE

Traditionally, real estate has been a rock solid investment during most times and one that consumers and investors alike can relate well too. Recently, however, prices on properties world wide have dropped significantly and apart from the distress it gives homeowners, who find themselves unable to meet their mortgages and/or sell their houses, it has thrown into doubt to investors, private as well as institutional, the validity of real estate as an investment.

This post looks into what the experts say and expect moving forward.

Eric Ames from Seeking Alpha has this to say :

…..real estate appreciation is not a reliable wealth builder. No one can predict which way prices will go next, and people should not rely on appreciation estimates when evaluating the worth of an investment opportunity. Investors should look instead at the cash flow numbers. Cash flow is something tangible, and it doesn’t require a call into the psychic hotline to predict.

In addition, properties that command better cash flow typically do not drop in price as much during market fluctuations. Dramatic price drops happen when people sell in desperation. They have to get out from under the house, so they drop the price until it sells. What motivation does an investor have to drop the price on their rental house if it is bringing in money every month? The answer is that they have very little motivation to do so, and so they probably won’t.

So while I agree that property appreciation shouldn’t be counted on anymore, that doesn’t make real estate a bad investment. Primary residences and rental properties are two entirely different animals and should be looked at independently when evaluating the merit of real estate as an investment. Investors can still make great money in the real estate market if they focus on the right things.

Mr Ames concludes vis-a-vis the US Housing Market that:

Is it the best path to wealth for Americans? I think the answer to that question is yes and no. I think it can be for the right person, who is willing to put in the time and energy. For the person who tries to cut corners, real estate investing is likely to be a painful and costly experience.

Bloomberg has an updated view and insight into Dubai’s troubled real estate scene which paints a very dark picture and perhaps future for Dubai itself, far beyond its real estate investments:

The property bubble in the desert emirate, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets. That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbor Abu Dhabi for financing.

“Dubai is more precarious than it has ever been,” said Christopher Davidson, author of “Dubai: The Vulnerability of Success” (2008, Columbia University Press). “If the property industry collapses in Dubai, it will be finished. Dubai’s relative autonomy will come to an abrupt end.”

The emirate’s push into luxury property developments and tourist attractions was diversification on “paper sand,” said Davidson, a professor of Middle Eastern affairs at Durham University in the U.K.

The same article goes on to conclude that Dubai’s investment honeymoon is over :

Real-estate values surged fourfold over the past five years, fueled by a supply shortage and an influx of expatriates. Rising commodities prices drove inflation, which accelerated to a record 11.1 percent in the U.A.E. last year. Dubai opened its property market to foreign investment in 2002.

Borrowers tapped mortgages for as much as 90 percent of a property’s value to buy homes on the manmade fronds of the Palm Jumeirah and villas with gardens or golf-course views in developments such as Emirates Hills, The Springs and The Lakes.

Now the credit crunch is coming to Dubai. It’s being aggravated by oil prices that have tumbled 68 percent since reaching a record $147.27 a barrel on July 11.

That will mean less interest in buying third or fourth homes in Dubai, said Gabriel Stein, a director at London’s Lombard Street Research, which provides economic analysis.

“There are bound to be white-elephant developments,” he said. “If it was built on the premise of ‘build it and they will come’ then that will now turn out to be a mistake.”

Banks are tightening lending or freezing it altogether. Amlak Finance PJSC, one of the U.A.E.’s biggest mortgage lenders, said Nov. 19 that it had suspended new home loans. London-based Lloyds TSB Group Plc stopped offering mortgages for apartments in Dubai on Nov. 11 and reduced the amount it will lend for villas to 50 percent of the price, from 80 percent.

The cost of a seven-bedroom villa on Palm Jumeirahdropped to as low as 19 million dirhams ($5.2 million) last month, from 30 million dirhams in September, according to the Dubai unit of German real-estate company Engel & Voelkers AG.

Matt Woolsey gives a quick global round up of a dire real estate scene in his latest article :

The sun isn’t shining for homeowners in Malaga, on the Costa del Sol.

Foreign buyers have stopped purchasing homes site unseen. Vacation home-seeking Spaniards, heeding the government’s warnings about a recession, have also pulled back. That leaves 54,000 vacant and unsold new properties throughout Malaga province, according to the Spanish Ministry of Housing. That’s 34,000 more than in all of boom-bust capital Phoenix, Ariz., based on Trulia.com figures pulled from Arizona’s multiple listing services, despite Phoenix’s 200,000 person larger population base.What’s more, 93% of Spanish mortgages are of variable rate, according to the European Mortgage Federation, thus pegging them to the growing Euribor rate. In 2003, that dipped to 1.94%; it’s now 4.27%.

And he continues :

As the real estate industry limps into 2009, such barometers are expected to remain bleak. To illustrate, Forbes.com assembled a series of snapshots of global real estate markets.

In some places, like the Baltic states, recent overbuilding is leading to softening. In Dubai, the slowdown stems from concerns about a declining oil market and in Spain and Florida, massive mortgage bubbles are driving down prices and upping defaults.

Of course, spots under sunny skies and sandy beaches aren’t the only ones suffering. Since the U.K. property market’s apex in March 2008, prices are down 13.4%, according to Knight Frank, a London-based real estate firm. Its head of residential research, Liam Bailey expects that in 2009, “U.K. residential prices will fall 30% from their peak, taking values back to September 2003 levels.”

This is also happening in the U.S. and Ireland. Both countries’ housing markets have lost more than 10% of their value in the last 12 months. Across both, prices have fallen to 2005 levels, according to Zillow.com, a U.S. data firm, and the Economic and Social Research Institute, an Irish research group.

Many economists believe the bottom has yet to arrive. For that, they are looking to the 2003 level, which is the technical point at which price booms began around the world.

But even that can’t be trusted.

“Nobody is going to buy buildings when they can buy first mortgages or second mortgages with 19 or 15% returns,” says D. Kenneth Patton, professor at NYU’s Schack Institute.

When transactions for buildings instead of mortgages return to favor, look for deals to take place in the U.S. This is because many investors see the American market as a good long-term play.

“Foreign investors have always targeted the major U.S. cities as being one of the best places to invest,” says Richard Kessler, chief operating officer of Benenson Capital Partners, a New York real estate fund. “I think when they come back into the market, they’ll come back into those marketplaces; the New Yorks, L.A.’s and San Frans.”

Until that point, however, expect another painful year around the globe.

Forbes throw light on the Asian real estate scene which is also witnessing a drastic drop and exodus of investors:

The real estate markets in India and China are fizzling. Over the last five years, prices for homes in China doubled. Now the number of sales and home values are falling in many parts of the country.

Oversupply and a slowing Chinese economy are playing a role. Also hampering real estate values is China’s ambitious stimulus plan to encourage the construction of new, affordable housing. Real estate investors worry the increased supply will push down prices further. (See “Olympian Bust?”)

India’s real estate market is following a similar course. It boomed over the past five years and now is slowing. High inflation and tightened credit are throttling the Indian economy. The restricted credit is also making it harder and more expensive for buyers to finance acquisitions.

The author goes on to give examples of billionaires from both countries who have suffered massive losses due to real estate:

Nobody’s more aware of the real estate market’s woes than KP Singh. The Indian billionaire is still worth $7.8 billion, but that’s just a fraction of his worth earlier this year. In March, we pegged his fortune at $30 billion. Shares of DLF, Singh’s real estate company, fell steeply over the past year.

Singh announced Tuesday that his company was deferring some projects because of weakening demand and a credit crunch. “Demand has gone down so substantially that now [a] lot of projects are being closed down,” he told a Reuters reporter at the India Economic Summit.

A sudden wealth evaporation also struck Yang Huiyan of China. In 2007, Yang Huiyan topped our list or China’s richest people with a fortune of $16.2 billion. She’s no longer at the top because her fortune fell to $2.2 billion.

For those investors and individuals with cash on hand, however, there are some amazing buying opportunities out there right now and most of these bargains will only get better as this author expects the real estate prices globally to continue to drop significantly during 2009, and probably beyond.

Asian Investments, Investment News, Middle East Business, Real Estate Investment investment properties, Real estate crisis

Emaar’s latest venture into retail.

Middle East Business, Real Estate Investment, Video Emaar, Middle East Business, retail

Government-owned Nakheel, developer of Dubai’s palm-shaped islands, is not in discussions over the sale of the company and has no immediate plans to cut more jobs, the chief executive told Reuters on Wednesday.

“There are no discussions with any parties,” O’Donnell said when asked whether any company had approached Nakheel about buying it.

Chris O’Donnell’s comments pour cold water on rampant speculation that the company will merge or will axe more positions after it announced on Sunday it had cut 500 jobs or 15 per cent of its workforce as it scales back projects due to the global financial crisis.

No smoke without a fire as they say……..!? Read the full story on this interesting rumour of Dubai company take overs here.

Middle East Business Dubai real estate, Middle East Business, Nakheel

ABU DHABI has demanded control of Emirates, Dubai’s flagship airline, as the price of a multi-billion pound cash injection for the Gulf kingdom.

The fast-growing airline, long the envy of neighbouring Arab states, has emerged in recent days as the centrepiece of negotiations over a financial bail-out for cash-strapped Dubai.

The emirate, which is ruled by the Al Maktoum family, has been hit hard by the credit crunch. Its property market, in which many of the big players are state-owned or backed, has enjoyed explosive growth over the last decade but prices are now tumbling, leaving heavily indebted developers badly exposed.

Government sources in Dubai confirmed last week that talks had begun with Abu Dhabi, which has huge oil and gas reserves, about funding. Rather than ploughing cash into the Dubai state, Abu Dhabi has offered to invest in its neighbour’s strategic assets.

Perhaps Dubai has come to realize that there is a cost beyond the usual if they are to get funding to ride thru this crisis !

Read the full story here.

Middle East Business Airline merger, Emirates, Etihad, Financial

After months of press releases and government promises that there will be no such thing as a bubble in Dubai, the big boys of Dubai are finally saying, “Beam me up Scotty, I think I’m in trouble.”

“Trouble,” would be the understatement of the year, and the developers are making it clear they are not one whit interested in the fortunes of the smaller investor. Despite the recent introduction of laws written to protect smaller investors, Dubai’s property developers are thinking up new ways of avoiding any responsibility and screwing every last penny possible from the situation as fast as the new laws are passed.

Elsewhere, prices are falling dramatically, with distressed properties being offered at 40% discounts on Palm Jumeirah, which is still massively over-priced. If falls in the US and Spain are any indicator, some analysts are expecting Dubai’s prices to fall anything as much as 60% in the next few months.

Other property websites are now starting to report on Dubai’s bursting bubble, and here is a selection:

Reuters - Dubai real estate suffers as distressed sales rise
AOL Dubai Property boom halts as prices fall and jobs go

According to Mohannad Sweid, CEO of Depa, some of Dubai companies are in “denial” about the viability of projects in light of the global financial crisis.

We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they’re either not announcing it or they’re saying it’s going to be delayed. We cannot deny the effect [the crisis] has been having, we are a part of this world and I believe it’s just not right to say we haven’t seen any impact. What we have had in the GCC in the last three years is the difference between reality and non-reality. Our market research showed there will be 280 new hotels built over four years within the GCC. That was advertised all the time… If we look at the reality - how many hotels have been delivered - it’s hardly more than five or six hotels a year.

Interesting to see how common it now is to read about the Dubai Bubble Burst !

Middle East Business Dubai Bubble Burst, Real estate crisis

Thus far, the Gulf states have remained fairly isolated from the impact of the crunch, partly due to the cushioning effect of surplus liquidity in their immediate neighborhood and the unspoken guarantee that massive sovereign wealth can be used to shore up any domestic collapse. Indeed, up until a few months ago the mood had been one of optimism, with many stakeholders in these economies contending that the region is impervious to the West’s problems and that it is has successfully decoupled from any global recession. Rightly, it has been argued that even plummeting oil prices are not a problem, as the annualized returns from the various overseas investment funds in many cases exceed total oil revenues.

Indeed the Middle East has been thinking it was not part of the Credit Crunch - the article goes on, however :

This view does not however appreciate the heterogeneity of Gulf states’ economies. Certainly, Kuwait, Qatar and the UAE’s Abu Dhabi are in very good shape: They have massive oil and gas exports and the largest sovereign wealth assets in the world. They also have relatively small national populations to distribute their wealth to. But in contrast, the more resource-scarce Gulf states, notably Bahrain, Oman and the UAE’s Dubai, are now highly exposed to the credit crunch.

The biggest victim is likely to be Dubai, as real estate and tourism (and by extension construction) have been allowed to develop into the key pillars of the economy. No moratorium has been placed on the expansion of these sectors and the city state has grown wildly in the last few years, with growth rates that would normally be associated with an overheating economy and rampant, unrestrained speculation. Furthermore, few sustainable economic activities have been introduced and attempts to build a vibrant knowledge economy have remained stalled.

 

Middle East Business Dubai credit crunch

“Indeed, Mohammed Alabbar, chairman of Emaar Properties, at the World Economic Forum meeting in Dubai in early November, pooh-poohed the idea that the emirate’s economy would take a hit. Dubai, he said, is not all about real estate. People who think otherwise, he said, “miss the mountain for the hill.” He then enumerated the reasons that Dubai and by extension Abu Dhabi would continue to grow: “re-exports and trading, tourism and retail; transportation and logistics; manufacturing; the free zones and the business hubs for IT, media, financial service, education and health care.”

Does Dubai still think it can avoid the credit crunch ?

Middle East Business Dubai, Dubai financial crisis