Castles in the Sky Aug 5, 2009
Dubai's development juggernaut - running on empty?
Until recently nicknamed 'Do Buy', since 2002 Dubai has enjoyed rapid, construction-led economic growth, as leader Mohammed bin Rashid Al Maktoum sought (successfully) to diversify the oil-dependent economy into a unique tourist destination and financial centre. Spurred by the optimism of the next five years, skyscrapers and other fantastical constructions seemed to spring up almost overnight. While some doubted the stability of this growth, thousands of others came, saw and constructed.
As Tim Cope, erstwhile of The Building Intelligence Group has told us: "The scale and pace of development is unprecedented, with more than 20 per cent of the world's cranes dedicated to the delivery of the Dubai dream."
Indeed when The Building Intelligence Group managing director David Mann was in Dubai in September 2008, he was in awe of the fact that no matter where you looked in the city it appeared only half of it was finished. "In effect it was like one big construction site," he says. "The whole 'build and they'll come' philosophy seemed unsustainable and I came away wondering how they were going to fill all these houses and buildings."
A 2009 report by global real estate consultancy Colliers International has suggested property prices in Dubai are now down 41 per cent from the last quarter of 2008. Credit is scarce and some international investors have reacted by ridding themselves of assets.
So the question is, how can the UAE mitigate its own property sector meltdown in relation to what is happening in the west? The government has agreed to safeguard deposits in all Arab banks and some larger foreign banks for three years. Government steps to keep credit available in the housing sector may also be needed. To complete unfinished projects, Dubai may look to oil-rich neighbour Abu Dhabi for financing.
Adding to the mix of forces that are currently influencing the local market are the government's investigations into malpractice and corruption, and new mortgage laws.
Perhaps the key to stimulating reinvestment lies in supporting a market that provides a higher degree of transparency and regulation. As Tim states: "The property market has seen recent change moving towards this goal with Dubai's Real Estate Regulatory Authority releasing a series of announcements to offer guidelines to help settle the turmoil currently underscoring the emirate's property market, including payment plans, developer gradings and a rental index."
Perhaps the less stable developers and their projects will fall by the wayside - restoring the demand and supply balance - and keep things moving. Or not? Tim for one is on his way back to New Zealand, and we look forward to seeing him in the New Year.