Dubai Troubles: Is it real?

Many people in any social setting are talking about the Dubai bubble (some call it the balloon) too!

I beg to differ just as I differ in my opinion, once again, with the Economist. The Economist printed another article without much facts in it. Here is the article:
http://www.economist.com/world/mideast-africa/displaystory.cfm?story_id=12684897

The article claims property prices have declined upto 80% without elaborating and providing details such as which location, is the property completed, used by resident or was it an off plan property to be delivered in 2012 or beyond? Speculator frenzy has indeed led to some decline of the 'over the top' pricing as speculative buying interest along with the buyer has simply disappeared so whoever is left holding the bag is in trouble, because he/she was a speculator in the first place. I don't have much sympathy with people losing values in speculative frenzies because they make a lot of money in booms by speculating and also lose a lot of money by speculating, so it all evens out in the end.

Coming back to the article and some commenters, I wonder why people talk about many laborers in their statistics. These laborers are unable to afford any form of housing ANYWHERE in the world? Then why will they be included in any number crunching here? Do we ever say that in USA or India or London that there are so many laborers or tailors or low income people, hence property prices in USA, India or London will not rise!

Nowhere in the world, we consider low income wage earners when evaluating home prices etc, so why do people get carried away here in Dubai?

Additionally, Dubai is run like a company and please tell me one company (or any Govt?) where the CEO or the management (or the PM or President) will not try to manage or navigate when a company (or a country) hits a rough patch. Due to this maneouvering some 'future' projects have been delayed and new developers are having a very hard time.

Dubai has been expanding and increasing its official GDP around 12-18% pa, unofficial numbers are greater as inputs of various types of people and industries in the best Govts of the world also cannot be captured.

The tourism is rising too and expected visitors are currently at over 7m people in UAE p.a. These folks spend thousands of dollars in hotels, visas, airfares, cabs, restaurants, children's rides, shopping malls, airport taxes etc. This is additional rising income for the Govt that did not exist just 10 years ago, besides property taxes, maintenance fees and the famous city toll gates.

Govt has also placed rigid plans for security and surveillance and hence is considered one of the safest cities in the world. Business capital has a tendency to gravitate towards a country/city that tends to provide the safest climate for employees, company and travel among other things.

Unfortunately, anywhere that you look, in this wide world of ours, especially in Africa, Middle East and Asia, we see calamity, wars and terror! This simply does not exist here in the oasis of calm in UAE hence attracting more and more rich business people that are a natural market segment for the country of UAE for both business as well as leisure. Being a central point for Africa, Middle East and Asia is also a plus point.

UAE also wants biggest and best of everything. There is nothing wrong with it unless you are a jealous kind of individual (or country). Because when America or Britain built its biggest and best armies, biggest and best bombs (remember Hiroshima), even biggest and best banks and insurance companies and beverage companies, internet companies and .....the list goes and on......how come the same people who are now getting jealous of Dubai did not previously or have never said America is building bigger so it will go down. No one ever said America is building the San Francsiso bridge which is the most beautiful and biggest bridge so America will fall. Or Canada is building the CN Tower which is the biggest in the world so Canada will inevitably fall.

We must compare and see the future, the trend, everything. We must have substance in our thoughts and provide facts.

I have lived here in UAE for over 14 years and have only seen progress and development. Neither NYC, London or China or Africa or any country can claim that they provided safety for their citizens and travellers alike as much as UAE. There has been no major crime here EVER! This is one major social factor for the growth here.

Aside from that, the country provides no taxes and no foreign exchange restrictions or 'protection of its economy' style legislations, except for banks (where it does not allow more than 1 bank from each country), which is fair as per WTO ground rules similar to ALL other countries.

Unless, you wish to do local retail sales in UAE, they do not want anyone to require a local partner. Hence if you a large trading or a manufacturing company, they do not even insist for you to create local employment which almost every other country wants you to do.

As far as labour rights are concerned, I say, if these labourers were so happy in their home countries, then why did they even think of paying large amounts of fees to their agents and arrive here!!! Even high income professionals are willing to take a trip to UAE in search of employment just like back in the 1960's people used to go to USA or UK in search of employment. Just ask any headhunter how many unsolicited resumes/CV's they receive on a weekly basis. The most recent number is approx 3,000 per week per headhunter (up from 500 last year)!!

I am sure there is a reason for the daily dose of job advertisements in the local dailies and international markets such as UK and India and Philippines from where hundreds of job agencies are supplying employment opportunities to people looking for work and sending them here.

The economy of UAE and GCC has been gradually diversifying into non oil and gas industries thus providing lot of stability for the future.

Since 1985, this country has been on a path to glory. Emirates airlines was created in 1985 which is today one of the finest airlines in the world.

A port company DP World (1991) and Jebel Ali Port (1970's) was created which today is the 4th largest port operator company in the world.

For such a small country of UAE (4m pop.), Etihad, Emirates, Air Arabia, Fly Dubai, Gulf Air - now sold were created along with 3 airports just in Dubai (4th is under construction) and all of them have been successful, not only in the region but globally!

The entire GCC is investing heavily into infrastructure and manufacturing facilities. Over USD 18bn will be invested in making 10 of the largest steel plants in GCC including 3 here in the UAE creating employment for many in the plant and ancillary industries and hence also attracting future residents and businessmen from across the world to buy/trade/supply to these plants.

Have a look here
http://www.eyeofdubai.com/v1/news/newsdetail-22050.htm

Dubai already has one of the largest alumnium plants in the world, named DUBAL. However, Abu Dhabi have now ventured into creating the single largest aluminium plant in the world:
http://www.iht.com/articles/2006/02/19/bloomberg/bxabu.php

Thousands of jobs in the plant and ancillary industries will be created and more business travelers will arrive being suppliers/buyers and traders.

Last week, in Abu Dhabi at the MEMEX exhibition it was announced by an independent research company, Proleads, that over USD 115bn will be spent in GCC in the manufacturing sector. Even if this number is high, assuming even a 50% actual investment of approx USD 50bn in the manufacturing sector, this investment will create hundreds and thousands of jobs spearheading the growth of the Middle East.

The growth strategies due to Govt spending and attracting business capital for diversification of various countries in the region are having a serious impact to circumvent the end of the oil era. But oil is not finishing in at least a 100 years (maybe 50 years) and until then, Dubai and UAE and the GCC would have reinvented into a manufacturing and tourism base besides just a glitzy and glamorous city.

Dubai and GCC is not only about real estate but about the entire spectrum of any economy. Every economy goes through a different path of success. Dubai’s success has been due to various reasons outlined above and is just a different path that has not been used by any other country just because no one has ever been in the same trajectory.

When it comes to number of units of real estate being constructed, there is no confirmation of the information that over 200,000 units will be available in any 1 year or 2 year period. If we do the math, i.e. if 1 tower has an average of 400 units, then we need 50 towers to be delivered every year (or two) for just 20,000 units. This means an average of one tower or 400 villas to be delivered every week (or two). This is an unrealistic assumption, in my opinion. No country can build or deliver so many units in one city week after week.

Due to lack of power supply, sewerage and other amenities, the Govt is practically constrained to release units and give certificates to enable people to move in.

By my most generous estimate (sorry, have no facts here), is that only about 10-12,000 units at most get delivered every year. This is nothing compared to the number of people who visit here, come on employment here or are just visitors using short term rentals and create new demand each year.

When I speak with some apartment owners who make their properties available for short term rentals, they are quite happy because the returns on short term rentals cover the annual long term rent in less than 6 months and still leave a chance to use it for your personal consumption.

Yes, there is a severe correction in the Dubai real estate market. However, it is not impacting any users who have steady jobs and income (or are rich businessmen, of which there are many) and nor the short term apartment owners and nor the cash rich people who own properties in cash outright.

The major impact of this crisis has been on new developers or on new projects on which construction has yet to start mainly due to lack of bank finance and lack of speculators. also, many buyers are adopting a wait and watch attitude which is normal and to be expected in a falling price market.

I estimate ratios of various type of property owners in Dubai as follows:

Actual self owned users: 30-35%
Short term rentals: 10-15%
Cash owned property users/people with capacity to hold: 30-35%
Speculators: 30-35%

Based on above estimates, I believe only about 30% speculators who have gained tremendously in previous years by flipping the properties and had become mega rich will get a shock. They will revert to their original sources of income outside of real estate or get totally wiped out. Negative equity has started hurting some of them and they are the ones causing all the distress sales.

I believe it will remain a buyers market for another 6 months and then things should stabilize and continue their rise once again towards making Dubai the most expensive place in the world!

As I sometimes mention, Dubai needs only about 1,000 NEW rich people every year from somewhere on this planet for it to continue its growth. With a population of millionaires reaching millions itself globally, I don’t think it should be a problem for Dubai. It never has been and it never should be! Investors need to place their money in a safe country providing the maximum opportunity. With the economies of the developed world nose diving due to their self destruction due to easy availability of cheap money at low rates, high gearing by various banks (not here in UAE) and lack of new money supply for variety of reasons, Dubai has everything to gain, if you think of 10 years from now.