29 November, 2008

Dubai: Has the bubble burst?

Nov 27th 2008 | DUBAI
From The Economist print edition

As the sheen comes off glitzy Dubai, the other Gulf states are getting nervous too

Full article here

“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”.

While the stunning opacity of government economic data is increasing the air of uncertainty, Muhammad Alabbar, who heads Emaar, 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 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?

Who do we listen to now?

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 GCC 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 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.


Proud Emirati said...

nope, not yet. We need more falls ..

Anonymous said...

Im a happy little camper watching this "correction" take place. It means I might actually be able to afford a villa in Dubai. Also might slowly reduce the amount of goods I have shipped by Aramex from the US. Jacking up prices 60+% and not expecting corrections to happen?

Though this is a very natural situation to be in after the fun thats been had for the last 5 or so years.

Though I'm a bit apprehensible of an article that cant even translate correctly.

“We said, what’s next?”

Correct translation would be "And we say, What else?"

These people share my employer's translation department?

Anonymous said...

i hope this means by the mid to end of next year i can finally afford to buy property here. Unlike everyone else...I didnt jump on the property band wagon then, coz i knew the high prices couldnt be maintained.

now i am waiting for prices to drop. this crisis wont last more than 2 years..so next year is gonna b the best time to take advantage of the credit crisis...if u have job that is.

ColOman said...

When will the prices fall to be normal and people can actually afford to buy a house?

Editor said...

Dubai is a great place and we are very lucky to be here in this difficult times all over the world.

secretdubai said...

Edited for formatting and to make the link clickable.

And clearly the bubble is bursting.

Fadi said...

Agree with Editor, house prices will rise in a few months Inshallah demand will definitely increase as hundreds of thousands of laid off westerners will look for and eventually get jobs in Dubai.

We expats should be thankful to be allowed to stay here, and should try our best to tell people outside UAE that all is well, so that the market can go up again.

Seabee said...

Remember that the original prices off plan were way too low - advertisements to attract British investors with apartments at £50,000 for example. Speculators saw that prices were way too low, snapped them up and immediately sold them on at a more realistic price.

Prices then became too high and are now dropping back, which has been the same in many other countries. But most owners will still be doing well - unless they stupidly bought at the top of the market. The same is happening elsewhere, with tens of thousands of, for example, Brits and Americans now having negative equity in their homes.

In Sydney four years or so ago we had a similar picture, people overexcited at rising property prices, a feeding frenzy started and many people paid far more than the properties were worth. Then interest rates edged up. When common sense came back into the market many of the houses were repossesed by the banks because the owners couldn't pay their mortgages. And they were sold for much less than the last owner paid for them.

The banks here, again the same as everywhere else in the world, are getting away from the stupidity of giving money to anyone & everyone and putting sensible checks in place, such as only lending a percentage of the purchase price and only to people who are credit-worthy.

We've had too much development going on at the same time and companies grossly overstaffed. That should now be fixed with the slowdown, which was overdue and very necessary, and we'll arrive at a more sensible business model.

DUBAI JAZZ said...

'Bursting bubble' is nothing but a metaphor. What does it really mean?

There's credit crisis and property owners are defaulting, and by result the banks will repossess their properties and prices will fall down. (As Seabee eloquently explained). I am afraid things will continue to get worse until real estate prices hit a rock-bottom.

Dubai will still be a desirable place in the turbulent Middle East (which sadly is more likely to remain turbulent). Oil prices might get higher in the near future (once Obama announces his stimulus package) and the Saudis will look around to invest their cash surplus. (It's really unfortunate that there are very few solid plans for investing in the Saudi youth but that's another subject all together.)

However, I hope this crisis will act as a reminder to every business planner not to overdo things.

So did the bubble burst? Tell to me what a bursting bubble means to you and then I'll tell you if the bubble burst or not!

Anonymous said...

ColOman said...
When will the prices fall to be normal and people can actually afford to buy a house?

Define "Normal."

ColOman said...

when a bubble bursts it goes 'pop' and it wont deflate..... If the rumor is true a large chunk of Emirates Airline, Dubal and Buj Dubai was sold to big papa.

If that is true .... the crown jewels are gone and I would call that a pop

Lirun said...

this is unbelievable..

with over half the population of the UAE coming from the indian sub continent..

how can the uaecommunity blog be so indifferent to the recent terror attack on mumbai?

are property roads and how big buildings can get the only things that matter?

Anonymous said...

sold to big papa

Abu Dhabi? hat isnt intirely true, but plans are in place for Abu Dhabi to "bail out" Dubai... and its not going to be for free. 25-45% of Dubai's holdings will be held by Abu Dhabi by June.

Lirun, Why should 200 people dying make me care? better yet why should 5000? an estimated 10K people dye in africa a week. why should 200 make me think twice? Give me ONE good reason.

Anonymous said...


Don't be surprised, ppl will not care if their neigbhour were abducted by UFO as long as they are safe! And life goes on.


ColOman said...

why June and not now?

i*maginate said...

these kinds of "debates" are useless, as i previously "debated"

Anonymous said...

Why June? Ongoing process. Dubai seems to be in denial. Wasnt it the CEO of Emar that as early as last week stated that "Dubai has no debt and infact a surplus?"

Moody's states otherwise. So do many other people. With every little bit that Dubai "budges" Abu Dhabi will own a little bit more.

We (Abu Dhabi) should just ask for 1/2 of all other 6 Emirates in exchange for pre-planned bailout plans.

DUBAI JAZZ said...

Of course I will care if my neighbour got abducted by UFOs, I would like to take pictures!

kochumanavalan said...

why is the bebble not burrsting i say. stopid rowdies from god knows where.

i*maginate said...
This comment has been removed by the author.
ColOman said...


Half only, are there any other takers............ if they wait they could take it all :)

lets hope they all take a breather.........

Veena said...

I am utterly stunned to read what ABIT wrote @ 20:15. Even for an imbecilic kid, which he appears to be from his various posts over the last year, the comment is shocking.

hemlock said...

i*maginate: i'm thinking yours? ;)

Lirun said...

well maybe the bubble hasnt burst yet..

in which case if i lived in the UAE i would be very concerned..

Scarlett O'Hara said...

Lirun, I echo your concern. I shared a similar sense of disbelief, visiting the blog in the week-end to zero reaction to the Mumbai Tragedy.

I thought to post at one point, then remembered how matters 'not directly related to UAE' can get the boot here, so Miss O'Hara thought she'd keep to her pig network promotion UAE-blogwise, while she sympathises with her Indian buds elsewhere.

Any pigs around?

BuJassem said...

Bankers just add fuel to the fire of boom and bust. Good article Coloman

Anonymous said...

I am utterly stunned to read what ABIT wrote @ 20:15. Even for an imbecilic kid, which he appears to be from his various posts over the last year, the comment is shocking.

Stunned? Why? Because I wont cry like all the other hippies and boohoo sad sad cry cry.

If CNN didnt blow it up you wouldnt have heard of it. Even if 2000 people died, doesnt change the fact that people DIE EVERY DAY.

Did I know them? Nope. Dont care. And truthfully, if I had known anyone in that "tragedy" I still wouldnt care. Death is a very natural part of life.

And no, they werent killed "before their time" It was their time.

Im appalled at your apparent need to make everyone feel and act as you do when it comes to nature taking it's course.

Humanity is full of far worse instances of cruelty. Live with it.

imbecilic kid? Hardly, Im wiser than you, better educated than you, more learned than you, more travelled than you, and better than you. My proof of the last one?

I know that death is natural, and that its human nature to cause harm to other humans... something you apparently havent learned yet.

Hani said...

Veena and S.O.

People die in Iraq and Gaza everyday, but I dont see daily topics about it.

What happned in India is sad and bull$hit but it happens everyday and we dont even blink, if this was a daily occurance in India you two would not blink either.

Its shocking now since it hit home and your not used to this happening daily.......

The Iraqis dying daily for over 5 years who cares.... they are not worth headline news or first page cover anymore.......

It hurts but its the truth.....after sometime we become immune......... or our feeling die.......

i*maginate said...

hemlock - was having a bit of a bubble moment there :P

Lirun said...

SOH: thanks for at least caring :)

allow me to give you a suggestion:

you could have written about how the UAE media analysed and covered these events.. its always interesting to review how the maintstream mouth pieces voice matters and relate to the world..

Colonman said...

I hsve news

strait from my colons

Lirun said...
This comment has been removed by the author.
Lirun said...

hani and abit

you are clearly solidly locked in a vapid bubble.. i think coloman received his answer..

and one more thing..

you talk about it happening every day and/or about it being natural for people to slaughter eachother?

well the same intellectually matt logic could apply to the incessant posts on real estate and traffic not to mention the odd sex on the beach debate..

like there is anything news worthy about "yet another building".. even in the UAE.. even to the residents and people of the UAE.. like anyone in their rightful real estate gobbling mind doesnt known about property cycles.. like this hasnt happened time and time again over the past 50 years.. fresh enough even for us young'uns to be aware.. we may as write a post on "will it be sunny tomorrow?"

however my guess is that when over 50% of your cheap labor comes from the country that looked up to mumbai as the engine of their developing economy.. as the solution to their herrendous life in the UAE.. as the slither of hope that perhaps their children and their grandchildren wont have to sell themselves to a dubai based construction company then perhaps you can dig beneath the dust coated crust of your skin and find a homeopathic trace of makes people human and react with a little more compassion to what is nothing less than tragedy..

because notwithstanding your apathy they constitute the resource that the UAE was busy mining to fuel the very bubble that you are so happy to discuss with such high priority..

DUBAI JAZZ said...

I’d like to see a topic about the senseless siege of Gaza strip. And the continuous attempt by the Zionist state to collectively subjugate Palestinian people (and children in particular) by putting them under food and medicine embargo.

Scarlett O'Hara said...

@ Hani, "Its shocking now since it hit home and your not used to this happening daily......."

Oh dear. It sure didn't hit home. Miss O'Hara is not Indian dear boy.

Which does not however stop her from sympathising with the innocent people who got slaughtered in the carnage.

In the same way her heart goes out to both Arab and Jewish children who are the innocent victims of the Israeli-Palestinian situation.

Yes Dubai Jazz, Scarlett too would like to see a post on the siege of the Gaza strip. Will you be so kind as to put one up dear boy?

Should we become blasé to atrocities ANYWHERE simply because it happens every day or it happens to 'others'?

Oh dear, oh dear, this is too much for my fragile constitution. I humbly take my leave from you all lovely people in the hope to regain my composure in less indifferent climes.. George Michael awaits you see!

Lirun said...

dubai jazz.. like how you cant respond to anything i say without invoking your one sided opinions of the jews..

the real nick said...


The logic behind your argument that we should talk about the massacre in Mumbai instead of the bursting of the vapid real estate bubble is warped. This close link between India and the UAE or the simple the fact that there are many Indian labourers in this country do not make the attacks any more or less atrocious, or important a subject for discussion.
If the massacre had happened in Timbuktu (where probbaly one happens right now) it would not be less worthy of condemnation or an in-depth deliberation - just not on the UAE community blog, which deals with matters pertaining to this country of which I believe you are not even a resident.

Thank you for your suggestions but please leave it to us to decide what we discuss here.

DUBAI JAZZ said...
This comment has been removed by the author.
Lirun said...

TRN - if you want a closed community interactive newsletter - lobby the administrators to change the settings.. this is an open blog that accepts comment.. i am not hijacking your post or your blog.. i am simply commenting on the composition of your bubble.. which is apparently so thick that a very tense situation - relevant to over 50% of your residents doesnt even penetrate your veil of materiality.. your bubble is so impenetrable that the only thing worthy of discussion is buildings traffic and the odd amorous couple.. anyway not my problem.. i was once a member and voluntarily removed my membership..

DJ: you dont disturb me at all.. no matter what i comment about - you throw my comment in israel's face.. i do not comment here to raise the topic of israel.. i dont need it.. i have my own blog..

i wont continue this discussion here.. now that a separate post has written ill ask my questions there.. my questions in this thread have already been answered.. thank you shalom peace salam

Anonymous said...

scarlett o fookinh hara would you please stop referrihg to urself as some holier than thou person
i smell a rat whenever i see such pathetic cyberactors

Anonymous said...

@ Hani

"The Iraqis dying daily for over 5 years who cares.... they are not worth headline news or first page cover anymore......."

Sorry bro but you are wrong. There are ppl who do care about Iraq and all the other places where ppl get killed for no fault of theirs.
Perhaps you will remember in spite of pressure from US India did not send its troop to Iraq.

steve said...

We still haven't read any stories in the paper about 1 speculator failing.

Are all these hucksters really geniuses? Or maybe it's a cover-up by the media? Or maybe property does actually go up at 30-50% every year.

I'll agree with Proud Emirati by saying, "Or maybe the sh*t hasn't hit the fan yet."

Scarlett O'Hara said...

@ Anon 19.55, but I AM holier than thou my dear "Anon"! :p

Get a sense of humour darling and dare write under your own name .. OR go on swearing under your anonymous guise...

George was awesome by the way, thank you all for asking, your interest in Miss O'Hara's life is much appreciated! :D

bwana_daoudi said...

There seems to be a sadistic tone in some of these articles recently published in the Times and the Economist. It's almost as if they are waiting for Dubai to fail.

Anonymous said...

"It's almost as if they are waiting for Dubai to fail."

More like they are waiting for it to be announced.

Word has it that Emirates Airlines, Dubai World, all the land beyond Jebel Ali, and a few others assets are in the process of being sold to Abu Dhabi in order to pay off debt they would otherwise default on.

Maybe BS, maybe not, time will tell.

rosh said...

"It's almost as if they are waiting for Dubai to fail."

It's not just DXB that's talked about, but anyone/everyone. Personally, I feel most mainstream media is so full of **** & sensationalism. It's ENTERTAINMENT with clueless buffoons talking out of their ass, for the most part. "Freedom of press" needs better accountability.

bwana_daoudi said...

"More like they are waiting for it to be announced."

No, they seem to be announcing it themselves (the papers that I mentioned, that is). And my comment remains: there is a sadistic, pessimistic tone that you will not find when said publications mention any other city or region.

Brad Zurich said...

Yes certainly the Dubai bubble has burst and we do not know that the rates are going to stabilize here or are they going to fall further. http://dubaipropertyinvestment.info

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