| 30 Nov 2008 |
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Has the bubble burst?
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As the sheen comes off glitzy Dubai, the other Gulf states are getting nervous too
"THEY said you couldn't create islands in the middle of a city," shouts a property advertisement over a jammed Dubai motorway. "We said, what's next?" The range of answers has become gloomier by the week, as the debate moves from whether the Dubai property bubble will burst to just how bad it is going to get. Some nervous bankers think property prices could fall by 80% or so in the next year or so. A few months ago, rich foreigners who had bought villas in Dubai were complaining about the quality of the sand on their artificial beaches or the difficulty of getting water to circulate around the twiddly fronds of the man-made island shaped like a palm. Now prices for some smart developments have been cut by 40% since September, shares in property firms have lost 80% of their value since June, and big developers are laying people off.
The region's banks will suffer too. Gulf policymakers are still making cheery statements about the region's limited exposure to subprime loans but are quieter about heavy investments in inflated local property markets by regional banks, particularly Islamic ones. But worried banks are sharply reining in their mortgage lending. A series of arrests of senior businessmen as part of a fraud investigation is also making people twitchy. There is even talk of a coming "Gulf Enron".
, a giant state-controlled property developer, took the rare step of telling people how indebted the country is. Together, the government and state-owned enterprises owe $80 billion--148% of GDP. Dubai still has a far larger stock of assets, at least some of which are likely to be sold, to cover the debts, to Abu Dhabi or the federal sovereign-wealth fund of the seven-state United Arab Emirates, of which Dubai and Abu Dhabi are the two richest. The rest of the Gulf has met Dubai's phenomenal boom with a mixture of envy and emulation. Now there are hints of pleasure at the idea that the epicentre of bullishness may be humbled. But there are worrying questions for the others, too. Could the Dubai property slump prove contagious? Will the Gulf Co-operation CouncilGulf Co-operation Council pull together to protect the region's economy? Should its planned monetary union be set aside as governments focus on protecting their own currency?
Since everyone else has been trying to copy Dubai, it is unclear how economic policy should be reshaped if the model has to be rescued. Advisers who have been preaching free markets and foreign investment will have a tougher time as economic power shifts back to the more conservative, oil-rich governments such as Abu Dhabi and Saudi Arabia.
Political stability may be affected too. A worsening economy may encourage political reform, on the assumption that people can be more easily bought off in times of plenty. At a recent BBC debate in Doha, Qatar's capital, on whether Gulf Arabs value profit over people, young Qataris said critics of their countries' poor treatment of foreign workers should look on the bright side; local citizens benefit from large gifts of land and free university education. Since the oil boom began in 2003, mega-rich Qatar has ramped up public spending by an average of 28% per year; the less well-endowed states have had to make do with annual rises of some 15-20%.
Several GCCGCC
economies will go into budget deficits next year for the first time since at least 2002, including Saudi Arabia, whose budget is based on oil at around $50 a barrel but excludes the cost of Saudi AramcoSaudi Aramco's massive programme of capacity expansion. Unemployment will rise as thousands more young people, many of them graduates with high expectations, enter the job market. Social unrest is likely to brew. The question is whether governments will meet it with repression or political concessions. © The Economist 2008
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Community Comments (25)
I just would love to know what all this have to do with this article - Bubble - , can we please NOT lose perspective.
and stick to the subject , every one have the right to have an opinion , but stick to the subject and not just state thing for the sake of stating them.
but i have to state one thing that I personally think , even though I am NOT a local this great city and Country should have every Resident love or why did s/he come if you do not like what you see , please no one is forcing you to stay go and Try to find a better place.
I have lived in 7 countries three continents and this is the one I like the most , it is not perfect but so am I ; I am not perfect every place have it's positive Plus side and negative side the thing is which weigh more for you as a person. Since life is about personal choices.
Enjoy life and time will solve all issues
So the crash is all the fault of those nasty westerners, eh Mohd? Without these degenerate Europeans, there would be no sordid side to Dubai, and all the wholesome and pious Emiratis would be getting along just fine.
Wake up, habibi, and look around:
- Who has presided over Dubai becoming the brothel of the region?
- Who has turned this emirate into a gigantic international casino with apartments instead of gaming chips?
- Who are the biggest importers and users of drugs in the Emirates?
- What are most Saudis/Kuwaitis/Abu Dhabians looking for when they check into the Burj Al Arab?
Face it, Dubai has created a sordid, crass, shameless, and grotesque parody of a city that exists, like a spoilt teenager, only to satisfy its addiction to instant gratification. No depth, no culture, no heritage, no shame.
Anyone who bought here was investing in sin city. Good luck to you.
Well...The bubble has burst...this is to expected in any property market any where in the world...so no surprises there, it is however very clear that the hordes of property agents who descended on Dubai and to laser extent in other sultanates where from the west and they had built up an expectation of a quick buck and some did walk away with a bundle as they knew the Dubai real estate market is not sustainable at a growth of 40% Plus PA, yet they continued peddling the myth of un parallel growth, the greed I spoke about was propagated by these individual’s, but any sane person will have the sense to apply some Due -Diligence and to take some of the hype with a pinch of salt...like me did...and got out time... I did not mean to implicate the whole of the western civilisation in the decline that I have witnessed having spent a fair bit of my time in pursuit of my business interest in the UAE, I would however like to express my dismay and disappointment at the effect the influx of westerners and there ideas of decency on the indigenous population, If this is what they chose to emulate, remembering that it is not trust upon them.
The fact that Dubai is perceived as Sin city is a issue for the local rulers, and unless the authorities dispel this current perceptions that its all ok for our foreign guest to indulge in drinking and in house prostitution as long as its done discreetly and does not involve UAE citizens, like the prospect of a quick buck in the property market and then the realisation that its a false nirvana it will and probably is too late to check the pervasive and insidious nature of corruption our next generation Arab youth..
May your God go with you, but pls do not be so aggressive if I as a concerned citizen flag up the impending and looming disaster to my respected guardians and rulers.
Not only do we as Emiratis and above all Muslims with a distinguished and proud heritage lose out to unbridled greed of the West but will also succumb to the de-generate and corrosive attitude that is flagged up as Western liberalism and freedom of expression.
Sex on beach in Dubai and flagrant disregard for our flag and Islamic values of respect and conservatism is flaunted in the hotels, which cater for Western tourist; since it goes on in hotels this is tolerated because it is seen as not under the jurisdiction of UAE laws, this is intolerable but is also a consequence of our governments' desire to be seen to placating the liberal West to the clear deteriment of Arab culture. As the Abu Dhabi Gov has come to realise inviting westerners is one thing but then go on to surrender our core value for the sake of a few dollars is not worth it, It is beginning to regret bank rolling Dubai in its head long quest to oblivion.
This crises should be a clarion call for all Islamic countries to desist from aping the West in consumerism and quick buck as these are all built on shifting sands and [focus] on our tried and tested values of thrift and generosity.
from reading the below i would see that the majority wit Positive , i would say it depends on your view , i am very positive , and was one of the very few early believers i bought with the first phase around 5-6 years ago. and now enjoy my house and would not sell it , i have even bought more . the idea is who long are you willing / want / can stay here then it does economic sense to buy if you will buy if your plan to stay 5 years and i personally do not think the majority are the flippers , but the demand / supply cycle.
hence there is NO bubble . it simply slowing down .
be positive and the long term
Dear Sheikh Mohammed bin Rashid Al Maktoum
In 2003, after my first visit to Dubai, I had written to you about how the West was hijacking your emirate and leading to a path to nowhere.
I was wrong. The path is downhill!! I do wish you were not enamored by the West
REgards
Manadey
Reading all the comments reminds me of the saying, Rats are the first to desert .........
It is the speculators who jacked up the rates in the first place. Genuine buyers who wanted a property to live in had to pay through their nose to these speculators. Whilst the going was good - they were "laughing all the way to the bank" and now are crying. How many of those who have commented on this site actually own a property that they live in.
I cannot see the argument that you can simply rent out your property. The market is falling and fast there is massive oversupply issues. Its simple economics "Supply and Demand". My advise cut your losses and sell at any cost if you can.
If expats start loosing there jobs they don't have any rights in dubai, they will head straight back home. Whos are you going to find to rent your expensive apartment if no one needs it or 10000s of other are doing the same. How long can you still pay the high services charges, interests etc.
Nakheel is firing 15%, Emaar is firing 20% and damac is firing many more employees. Many of the Palm developments have been put on hold indefinatly. Trump towers hotel. These developers know where the market is heading. Coupled with the stock market which as dropped +66% this year. This is only the start.
Dubai market will crash, steer clear at all cost.
Welcome to the party!
I visited Dubai about six months ago. I thought it was the most ridiculous, absurd bubble I had ever seen. 1 km tall buildings and islands the size of Manhattan?
At the time people told me everything was fine, the country is rich, there's oil money to solve everything. Business was still booming, demand was still high, etc. That's what I'd been hearing in Russia before their crash. Yet having seen the US, the UK, and then Russia and the other emerging markets crash, Dubai kept spiralling higher, believing they were different.
Well they are not different. It doesn't matter that Dubai is a good business hub and will survive at an important city in the region. That's not going to make your property recover. The Eurostar is still taking passengers from London to Paris, but equity investors who built it lost 100%. Japanese property prices are half what they were in 1990 - that's 18 years of waiting for a recovery. That's what a bursting bubble is like. You want to hang on to you property because you'd prefer a massive paper loss to a smaller realised loss? Go ahead.
And people still think rents are going to stay high! This is your real estate broker's last, most desperate excuse as he tried to deny the reality that there is nothing, absolutely nothing that can stop this collapse. You are going to believe the property market salespeople that were "conservatively estimating" that your property was going to go up another 20-30% next year? Who drew nice little demand charts soaring up into infinite? You believe them because they give you what you want to hear.
The current crash is a correction waiting to happen. I have to say that those who got out of the real estate market before July are the lucky ones. As for those who go it a year ago and hoping to make a quick buck, well I think that train already left. On the bright side, Dubai is a shining star of the middle east and is strategically the located to support the flow of east-west travel throughout the world, so the long run will be a positive one. But life will be cheaper and it will pick up again, when depends on how many short minded investors currently live in dubai. The real estate market is on a downslide, and it's only the beginning, this is any opportunity for a new kind of market. Good luck!
If Dubai was a person it would be this: A man working long hours, driving a new Porsche and a Range Rover sport, owns three apartments in the city and believes he will be the CEO of his own company in a few years, invested in the stock market dreaming of 10x returns.. and best of all he makes AED10,000 a month and zero savings.
Welcome to the world of DEBT.. $80 Billion of it!! who do you think will pay for that? definitely Salik won't cover this. or more road radars! this is the surprise we all wait for... People when you can't see the end of the tunnel dont just sit and wait.. be smart and cut your loss short if you hold any property or stocks.. best of luck to all
We all read he above and the comments, however, I wold like to comment on what I heard from my ex boss, when I was in Investment Banking:
When the Petrol Oil is quiet high, the revenue generated is being invested in the big US giants, or in safes in some big bank somewhere, except for Dubai out of the GCC. They have opened the doors wide open for all kind of investors, building and finishing what they can achieve, brfore it all comes to this. Think of Taj Mahal, when all were poor and hardly managing to eat, there comes the big lover with his famous Construction. Now, its one of the best sights that people visit as part of visiting India.
So this is Dubai, dreamt big, and achieved much, and when all are losing heir heads like GM & Ford, Dubai will suffer as well, but will be ready for Phase2, when things should look brighter world wide.
Its a matter of time
any oil broker and serious financial analyst knows that the current low oil price is temporary and will rise considerably in future. Or if not the twenty financial websites I am subscribe to and my two stock brokers in the UK and the USA and my commidity broker in London have been misinforming me ! Dubai/Abu Dhabi has been profting from the high prices last year and will do in the future. They are well set to support the real estate markets.
Dubai has positioned itself as a global city, when New york and London are mentioned, today Dubai is also stated as a global city.
What Dubai has built today supercedes any other city on Earth. Tourism, 200 Million Transiting Passengers by 2015 and Goods Transit, Hotels and Resorts, Shopping Malls, Office Buildings, The Financial Center, Entertaiment, Education, Exhibits and many more sectors are all dug-in to keep Dubai a REGIONAL CENTER.
No doubt, the financial crisis has severely affected greater economies. Eventhough, I personally have no investments or intrests currently in Dubai, but, rest assured my eyes are open to great upcomming opportinities in Dubai.
Dubai is far beyond the Bubble Bursting question. Know we all should ask if the "Great Dam has cracked" ..? and, where and when will it be plugged. I'm sure the UAE government will set a great example on how it will put this case to rest.
People only look at negative side of the issue , look at the other side, how many assets do they have?
Do they need money yes, are they begging for money -NO. They just paid over a billion for loan repayments. I personally think their pockets are much deeper than any person on the street thinks.
Another thing - you should have faith, not blind faith but realistic one and understand that what has happened in Dubai never happened before and will not happen again. Again the global recession is not hitting Dubai we are simply slowing down not dipping.
At the end of the day, if it was not a great city with great potential no one would have lived in it.
One last thing - vision and plan are long term things, not a one-year or a couple of months thing, so wait and see.
I'm touched by the very many comments posted here. My family and friends have been severely hit by the situation in Dubai. My advice to them was not to panic and to stick to their commitments. The worse thing that can happen is to lease their properties. The lease market hasn't been struck yet and most likely rents will weather the storm.
The founder of Dubai's revolutionary development program Sheikh Mohammad Bin Rashid built it's unchallenged infrastructure, the seeds of growth for any modern city on Earth. The achievements in Dubai make it a festive ground for further growth. Infrastructure is the incubator for development. Only a few cities in the region have parts of it and Dubai's people have no agenda but to stand behind it. Opportunists are welcome to stay or leave, but they shouldn't forget the arms that welcomed them.
Leave alone chaos and panic, Dubai Will Stay.
I bought an apartment in JLT 4 years ago offplan and it had seen incredible growth up until July this year. Now I am having trouble selling at 2 year old prices. Unfortunatly it has still not finished.
The Dubai developers cannot be trusted. This development was supposed to be finished over a year ago and they have just stated it will be finished end of next year. I have paid 75% already. Great. With the AED to £ so strong I am really feeling the pinch.
What do I do? Where have all the buyers gone?? With soo many sellers at the moment, I have to just hold on now.
80B$ debt..150% of GDP in debt and no real way to pay this debt back unless Abu Dhabi buys most of Dubai assets (Emirates, Dewa, Dubai Properties, etc...).
Dubai does no have the revenue generating assets to pay off its debt, now that the bubble has burst it will have to sell off the crown jewels to pay back its debt.
What happened to the 'vision for dubai"????
I am happy to see some passingers getting off the train they dont belong to . in my opinion Dubai is a running train with no brakes , now is a perfect time to wait at the next station and get on the dream expressway to enjoy live-time ride.
i amazed how people follow the crowd and how no one knows the facts , so we are only stating an opinion in teh darkness , since there are no Numbers / no data on the number of Apt. Villas / etc and the Morgate on them , if a person ahve a morgate and can pay it he will not sell at a loss , he will wait till the it is ready and then sell . teh morgate ahev more than doubled last year hence teh Flippers ahve been reduced and we have to acknowledge that not all all treated teh same , you can not compare teh palm villa witha price of 20 million to a studio in internationl city .
hence the Only way i think is to wait for the price index and see , and teh best way is let teh numbers speak for themselves .
at the end of the day , we can not compare Dubai with the USA
have soem faith people and its is cycle that we are will be back up .
People are running for the exit but not finding buyers. It was good while it lasted, and I am glad I got out in time. As the worlds slows down toursim with get hit first. Who wants to visit and expensive sand pit?
I predict full blown crash within 8 months.
Reading some of the comments I am wondering if we are talking about the same Dubai?
Promises of 200m tourists in 7 years when hotels are currently more than half empty in Dubai, the beaches soiled by sewage and people are being fired by the 100s is not a realistic goal.
The main issue is that for the past 6 years people got all hyped up on the real estate craze and thought it was going to go on for ever. Now massive debt has been generated by the government and by the citizens and while the government has big brother in Abu Dhabi to bail them out, citizens are left with negative equity.
Withouth getting into the social aspect of 1000s of local Emiratis loosing their jobs (yes, not everyone loosing his job is an expat), economically this means the local economy will take a serious hit.
There are a number of reasons why dubai market is likely witness a massive crash next year:
1. Prices of services and goods very expensive
2. Poor quality to apartments compared to price
3. Poor infrastructure roads/saftey
4. Economy based on consumerism
5. Government which thinks it can control the market
6. Oversupply
7. Completion of Tallest Tower
8. Trying to be number 1 at everything (inferiority complex)
Its become a tacky city which is too expensive with nothing there. SE Asia is much more better value for money.
When Dubai crashes it will be the biggest in the world. Which it can added to its endless list of number 1's.
And they said it never would...
the problem is there was no long-term strategy for end users in the real estate market to benefit. The middle income expat family were left in the cold to deal with high rents and build property mainly for western expats or very wealthy investors, and they rest sort themselves out. In addition, there no were longterm faith nor commitment for an expat to have long term residency for says 5 or 10 year after owning a property, not to mention the weak laws that were introduced late and few financing options provided. All these factors coupled, with banking credit crunch, inflation, poor planning, running business in this part of the world on things done YESTERDAY and the goal was a quick buck for sepculators we end of with a bubble. Go back and read about the 80s, history does repeat itself
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