And now [with other views very welcome!] for my next prediction:
Dubai real estate values will fall far more in the next 3 years than USA values than USA or GB values have dropped in the current sub-prime crunch. Further, they stand far less of a chance of coming back to present levels in our lifetime.
Why?
Because around half of the homes and apartments in Dubai have been “sold” to speculators who would never dream of living in them, but expect to flip them for big profits.
They were, in fact, able to flip deals they bought “off plan-pre-build” for the last few years. But when too many people buy to flip, there is no one left to flip to. Sales have virtually dried up in the past two weeks.
Panics can arise out of nowhere and destroy seemingly healthy businesses overnight. Compare with Bear Stearns.
With no end users insight into all those offices, homes and apartments, all it takes is a few negative rumors & scandals to dry up speculative buying. It has already started.
So far the regular media is not mentioning it. When the speculators all rush for the exits at the same time, the “investors” follow. Then banks and lenders are left holding the bag. As Dubai & International Banks in Dubai have made far too many “sub-prime” & “equity release” loans of 100% and more on many properties, it will be a near-empty bag.
With half or more of all the properties expected by me to be in foreclosure, it is difficult to see any other outcome than an abrupt end to the present construction boom.
Then what?
A big depression, & a massive exodus from Dubai. Is this 100% sure?
No! Nothing is sure. Something unexpected could change things. The rulers of Dubai might be able to pull a cat out the hat. There is one bright spot: The local Dubai banks & stockbrokers have been doing well managing the money of wealthy Arabs and handling many financial transactions.
But their bad bets on real estate and their need for new employees is a drop in the bucket compared to the looming defaults.
Dubai has gone from a population of a few thousand natives a few years ago. They now have infinitely more commercial and residential space under construction than they could conceivably fill.
The city is mostly half vacant apartment buildings –housing for 2 million expats, but they are not coming so much anymore. They supposedly have 25% of all the building cranes in the world set in place for new projects.
In a word, they are grossly overbuilt and are continuing to overbuild in the face of slackening demand.
The grandiose projects, “attractions” and amusement parks built or under construction are doomed to failure. They will be as empty as similar projects built a few years back in Brunei.
Why?
Dubai is one of the most unwelcoming, expensive, unpleasant, uncultured places in the world to live. Dubai won’t grant citizenship & passports to expats no matter how long they live there, legally or otherwise.
The climate is unpleasantly hot, to put it mildly! It is always so hot you can fry eggs on the sidewalk. Local “justice” is badly skewed against foreigners.
Cracks are appearing in the whole economic structure as it is revealed that some residential projects that have been partially sold “off plan” will never be built.
Deposits can’t be returned because the money has “disappeared.” In a Muslim country, it is very easy to see that Christians will be the scapegoats to blame for whatever goes wrong.
Would you take a chance at having your right hand amputated? That would be the punishment for being involved in “misplacing” the money of the wealthy local speculators.
No one in their right mind would choose to really live in Dubai without the opportunity to make a fast buck. For PTs who could find ways to profit from all the frenetic activity but were/are ready to move on, it was a fine place for the last few years.
But the building boom will probably unravel this year. Even with no income tax, there is not enough there to attract as many wealthy permanent residents, workers, retirees, and an ever-growing new population they need to keep it dynamic.
Dubai won’t disappear, but this will be a setback for the country. A lot of investors will get burned. Opportunity for some may be in picking up distressed homes or buildings at a tiny % of building cost.
Unfinished buildings may be acquired for a song. Hi-rise apartments are more dangerous at any price. Why? When other tenants [or vacant units] in a condo won’t pay their share for upkeep, the ones remaining will be stuck with the bill –or no maintenance will be done at all.
Well, guys, I could write a book on the subject, but just remember you heard it here first.
Gramps Comment: 14 May 2008
I have to agree with you on this … I’ve long thought that Dubai, and to a lesser extent some other rapidly developing Middle Eastern states, have been placing far too much reliance on property growth without anything fundamental to underpin it.
Once the global economic situation worsens, which it will inevitably do, many investors in an overseas property will be forced to retrench, which will mean selling at a substantial loss because of the already massive over-supply you mentioned.
The countries which will be affected to a far lesser extent will be those which have been far-sighted enough to diversify their economies into many different fields, not just property and tourism.
Although I’ve not been for a while, from what I hear from several very recent visitors, Dubai is now one over-developed high-rise hell, with massive pollution, noise, traffic problems and no sense of community.
A friend who lives about 15 km from the airport missed his flight to London a couple of weeks ago because it took him almost 2 hours to make the trip.
Traffic was that bad; far worse than driving from central London out to Heathrow — and that’s saying something! I also hear rumors that sales of development plots in “The World” have completely stalled and that there are substantial discounts on offer for unsold or resale properties in all “The Palm” developments.
The property market here in the UK hasn’t (yet) been affected to anywhere near the extent to which many believe. On average prices have only dropped by a couple of percent, and given the 150%+ rises over the last few years, this is insignificant, however as in Dubai the buy to let market has been severely affected with something like 30% of all new builds in many cities still standing empty and forced sale values down by 30/40%.
This doesn’t reflect the true residential housing market through as many of these properties, largely apartments, were originally way overpriced for the investment potential they were supposed to reflect.
It’s going to be a major economic blow to many Brits who have jeopardized their own homes because of high borrowing levels. They “invested” in Dubai. Now, where their apartments could be rented at all, they are getting much lower than expected rental returns.
Thus they can’t service the loans in their own homes in England. With regards, Ian ‘We’ve made a pact with the devil to be here. But if you’re a silly girl who gets into trouble, forget it’ As two Britons face a six-year sentence for indecent behavior on a beach Carole Cadwalladr explores the dark side of Dubai
Carole Cadwalladr
The Observer,
—//www.guardian.co.uk/world/2008/oct/05/middleeast.gender
Sunday, October 5, 2008
Article history
Before I arrive in Dubai, I meet ‘Clare’ on an expat website who insists I visit her at her home in the Meadows, a housing development in the city’s suburbs – ‘to give you an idea of how so many people get misled into thinking they are in Milton Keynes’.
Half an hour in a taxi later, past the skyscrapers, and the construction sites, and the six-lane highways, and minibusses of Indian and Pakistani workers being shuttled from one project to another, I’m in a straight-out-of-a-David-Lynch-film picture-perfect suburban road lined with picture-perfect suburban villas.
And there’s Clare. ‘That’s what I wanted you to see!’ she says before I’m even out of the car. ‘Look at that.’ I’m looking at a wheelie bin and not really understanding her point. ‘People see the wheelie bin and they think it’s all familiar, and normal, and therefore nothing bad can happen. Ha!’
The Meadows is a gated enclave with a uniformed security guard and lush green landscaping, and Clare is a British expatriate wife whose husband is a contractor. To all intents, they’re living what looks very much like the good life: there’s a pool in the back garden, year-round sun, and in the living room Sky News is on.
‘Oh yes, it looks good, doesn’t it? But we’ve all made a pact with the devil to be here. You get the tax-free salary, but in return, you have to give up all your rights. There’s no accountability, no transparency, no rule of law. There’s no legislative body. Very few employment rights.
It looks like a modern country, but it takes more than a few skyscrapers to create one of those. Scratch the surface and it’s a different story. And if you’re a silly young girlie who gets into trouble, then forget it.’
There’s a particularly silly young girlie Clare is referring to: Michelle Palmer, a 36-year-old advertising executive who in July this year was arrested for allegedly having sex on a beach with Vince Acors, a 34-year-old visiting company director from Kent.
It’s been a tabloid sensation. Palmer’s ‘Bridget Jones’ lifestyle endlessly examined; at least a dozen conflicting versions of the story printed – they did have sex, they didn’t have sex, Palmer may or may not have waved her shoe and called the policeman ‘a fucking Muslim’ – the case comes to court this week and the prosecution is said to have concrete DNA evidence to prove they didn’t have sex, but beyond that, almost nothing is certain other than the fact that, if convicted, they both face up to six years in jail.
And whatever the verdict, Palmer has already lost her job – with the publishers ITP which produces Time Out Dubai and whose chairman is Andrew Neil; but then there’s no such thing as an unfair dismissal in the United Arab Emirates – and been mauled in the press.
The Daily Mail is in strict accordance with sharia law on this point: it’s the woman’s shame.
In Dubai, it’s shocked the local population and split the expat community between those who feel sympathy and those who think she deserves nothing less than a stoning. ‘What I can’t believe,’ says Clare, ‘is the amount of venom directed towards her. The reaction here has been unbelievable.
I think people are under such pressure. They know it’s not the dream. And they need a scapegoat. The fact is that if you can ascribe blame to someone else’s misfortune, then you are indemnifying yourself against it happening to you.’
There are a lot of Brits in Dubai.
A lot of people that it, or something similar, could have happened to. People who don’t much want to contemplate how the judicial system works (at best haphazardly, at worst unequally), or how long you can be detained without trial (months at a time) or what the British embassy will do to help you (not a lot). In the past year, 230 Britons have found themselves imprisoned for offenses ranging from driving under the influence to bouncing a cheque.
It’s a minimum four-year term if any trace of drugs is found on you: the Radio One DJ Grooverider, caught with 2.16g of cannabis, spent 10 months inside before being pardoned two weeks ago, and Cat Le-Huy, a producer with Endemol, spent three weeks in jail without being charged, for possession of Melatonin – jetlag pills.
The Palmer-Acors case is about much more than any of this, though. It’s exposed the very contradiction that has made modern Dubai what it is: a tolerant haven in an intolerant region.
And it’s the tension between the two Dubai’s: the socially conservative society whose penal code is based on Sharia; and the other Dubai, the increasingly visible Dubai, whose numbers are growing with every fresh planeload of people who land at the airport and wear crop tops to the mall and drink shooters in the bars.
It’s to Dubai’s enormous credit that these two halves have so far been accommodated side by side, but the strain has started to tell. When I visited last week, it was Ramadan and the restrictions in Dubai are far harsher than in any other Arab country I’ve visited.
Eating and drinking during daylight hours are illegal; even for non-Muslims, having a sip of water can mean a jail sentence. I got the timing of my trip all wrong.
I’d wanted to check out the Friday ‘brunch’ scene, all-day boozeathons which provided the setting for the Palmer-Acors romance, and I email the editor of an English-language newspaper in a panic. ‘Don’t worry,’ he emails back. ‘You’ll see plenty.’
And it’s true: I can’t drink coffee at the Starbucks next to my hotel, food is only served in a curtained-off enclave, and the clubs are closed – a DJ called Michael Robert describes the usual scene as ‘like Ibiza but minus the drugs, the fights and the aggro’. But after 7.30pm, all across the city, in any number of bars, it’s like downtown Croydon at closing time on a Friday night.
At Long’s Bar, it’s a crush of short skirts and spaghetti straps – alcohol is illegal if you’re a local, and practically a social obligation if you’re not. And afterward, a local journalist takes me on a tour of ‘the dark side’, taking in a hooker bar in a four-star chain hotel. Prostitution is illegal but absolutely blatant – every shape, size, nationality, ethnicity and possible aesthetic taste catered for.
But then, somehow Dubai manages to be all things to all people. It’s capitalism’s ultimate expression: the land of opportunity, the most developed city in the Middle East, a free port. It’s ruled absolutely by Sheikh Mohammed bin Rashid Al Maktoum and is a constituent part of the UAE, a federation of seven emirates, including, down the road, immensely oil-rich Abu Dhabi, whose ruling family has just bought Manchester City.
Dubai, on the other hand, never had much oil; it’s been forced to develop in other ways, to provide whatever is needed, and it’s done so more quickly and successfully than anyone could anticipate. It knows what the rest of the world wants and has built it before anyone else has even realized.
Alexander McNabb, a PR executive and the writer of a blog called Fake Plastic Souks, arrived 15 years ago, when ‘it was still a village, a strange and very foreign place’. It was the entrepôt of the Gulf and its R’n’R facility, where oilmen came to relax – they knew the rules and relished the freedom. It’s this that’s changed.
There are now 100,000 Brits living and working in Dubai. And last year 1.1m UK tourists visited – despite summer temperatures of 50C plus, it’s now the second most popular long-haul destination after Florida. And the ways in which the city is changing are in many ways a reflection of Britain itself.
Now, says McNabb, ‘you drive your western car to your western office. At the weekends you go to the Western hotels and have your western buffets and western-style beach club, and it’s quite easy to ignore the fact that you’re abroad.’ He’s right. It is easy. It’s four days before I hear any actual Arabic.
Most remarkably of all the remarkable things about Dubai is that it’s occupied almost entirely by foreigners: native Emiratis make up barely 20 percent of the population. They’re a minority in their own country. When I meet Sultan Al-Qassemi, a businessman, and journalist, he points out that the Emiratis are handling this rather better than the British would. ‘Can you imagine?
It’s the equivalent of there being 55m foreigners in Britain and just 5m of you. It’s a unique case, and I think we deserve extra credit for the way we are handling it. The country is completely open. It is a utopia! Anyone can come here! We are one of the most tolerant countries in the world. And all this has happened in a single generation. Thirty years ago, it was a desert.’
He sends me down the road, to the Sheikh Mohammed Centre for Cultural Understanding and I arrive in time for iftar – the breaking of the fast. There’s a group of expats and we’re given dates and water, and then platters of home-cooked food are brought while young Emiratis tell us about their culture. It’s fascinating: they’re so friendly and articulate and welcoming. ‘It’s so difficult to meet Emiratis, to talk to them. In a year, I haven’t properly met one,’ a British woman named Paula tells me.
Khulooda, a bright and sparky 21-year-old in a fringed abaya, tells me she’s studying marketing and tourism. She thinks people maybe need to do a little more research about the country before they arrive. That maybe people should wear more appropriate clothing when they go to the mall. That Palmer and Acors should have known better. I think maybe she’s right. And I hope, for her sake, that she goes into some other industry instead.
A decade ago, who had even heard of going on holiday in Dubai? But what Dubai has proved is that if you build it, they will come. For if there’s one thing Dubai can do, it’s built: one-third of the world’s cranes are here at any one time, most of them directly outside of my hotel window.
I try and count them but give up at 70. The highest is perched a kilometer up in the air, on the top of the Burj Dubai, already the tallest building in the world, and it’s not yet finished. Next month, the biggest shopping mall in the world will open, the Mall of Arabia, and shortly you’ll be able to fly into the world’s biggest airport – six runways and the size of Hong Kong island.
What’s more, if you stay in your hotel, you need never even know you’re in an autocratic Islamic state where it’s illegal to hold your wife’s hand in public, or be gay, or found with 0.003g of cannabis – less than a grain of sugar – on the sole of your shoe, as Keith Brown was, a youth worker from the West Midlands who was sentenced to four years in jail.
But the hotels are wonderful. And even the Observer’s modest budget runs to a five-star number. I’m on the 35th floor, with vertiginous views down, vertiginous views up. It’s slightly queasy-making, more so after I talk to Chris Davidson, a Gulf political expert based at Durham University.
Two of the 9/11 hijackers were from the UAE, he tells me. And every weekday, the malls are full of able-bodied young men simply hanging out.
‘They’re the first generation who’ve had this cradle-to-grave security, who receive a house from the government and money to get married, who’ve not known hardship or what it is not to have air conditioning. How are they reacting to what they see happening to their country? And if something did happen here, tourism would collapse overnight. Real estate would collapse. Dubai is so fragile. It’s the result of a global boom and it’s never properly been put to the test.’
Economically, nobody’s sure how it will weather the global crisis. The region is awash with ever-increasing petrodollars, but Dubai’s construction projects are highly leveraged. And culturally, tourism is Dubai’s great unmentionable can of worms, its fault line.
A blogger, who’ll only identify herself as Secret Dubai, tells me Dubai’s marketing machine has deliberately created ‘the false sense of Westernness, of a trashy holiday resort’. And, according to Davidson, it’s reached ‘a critical mass. Previously people were corralled into five-star enclaves; what the Palmer-Acors case shows is that they’re starting to leak out.’
The week I visit, Atlantis opens – a mega resort owned by Sol Kerzner, the South African who gave the world Sun City. It’s a vast pink edifice that looks like something Katie Price might design, built on an artificial island shaped like a palm tree.
It’s actually only one of three palms under construction, which together will add 520km of beaches to Dubai’s coastline, and where the Beckhams are alleged to have ‘bought’ a villa, along with Rio Ferdinand and Michael Owen. It’s all PR, but then nowhere in the world wants the Beckhams to love it as much as Dubai. It’s more of a WAG than almost any other place on earth: flashy, artificially enhanced, desperate to please, all things to all people.
I tour the resort and dutifully write down the stats: $1.5bn to build,1,539 rooms, a Nobu and a Locatelli restaurant, a $25,000-a-night suite, 65,000 marine animals, a 1.4km beach. Do you think most tourists even know it’s Ramadan, I ask. ‘That’s a good question,’ says the PR, a South African. ‘I think they receive information at the airport.’
Actually, they don’t, I say. We ponder this for a moment, and then she tells me about what a wonderful life she’s had since she moved there. Back in the Meadows, Clare invites me to an expat ladies’ coffee morning. It’s not an obvious place to go and meet a hotbed of radical malcontents.
The lawns are neat, the communal pool still inviting. And yet… Nobody’s managing to save. Rents are sky high: £45,000 a year for a modest villa, paid in advance. And you can’t move jobs: your visa is sponsored by your employer.
Jane says: ‘If I knew now what I knew then, I just wouldn’t have come.’ She’s spent months and months trying to get her daughter with mild ADHD into any sort of school. Laura bought a house, in a ‘lovely, quiet, very green development’ and the road in front of it has just been torn up to build a six-lane highway. And Rebecca, who’s lived in Dubai for 13 years, tells story after story of the Dubai-dream-gone-wrong.
‘People just don’t know what they’re getting themselves into,’ she says. ‘There’s no social infrastructure, no safety net, nothing.’ You don’t even have to do anything wrong; a bad case of bad luck is enough.
She puts me in touch with Richard, a twinkly fortysomething who came to Dubai as a salesman with a multinational company. ‘And then, in one month, I had a car accident, lost my job, and my marriage fell apart.’ Richard fell behind on his car payments, his bank loans, his credit cards.
‘Everybody lives beyond their means here. It’s all front. It’s like Dubai – a totally false appearance to what it actually is.’ He was charged by the police with defaulting on his loans and his passport was confiscated. ‘So I couldn’t get another job and I couldn’t pay the debt, and I couldn’t leave the country… and to cut a very long story short, I got 12 months.’
It’s quite a story. He’s only been out two weeks, but he’s still managing just about to smile. But not even the judges are Emiratis: they’re on short-stay visas like everyone else, and the only thing he had going in his favour, he says, is that he wasn’t Asian.
‘Tons of them are in for practically nothing: jaywalking or owing £10.’ All over Dubai, you see construction workers outside in the searing heat. They’re the ones building Dubai – they live in what is openly called ‘labour camps’, have very often paid hundreds of dollars to an agency for a visa and are trapped for years until they’ve paid off the debt.
The 7,500 workers on the Burj Dubai are paid $7.50 a day; unskilled ones $4. It’s how globalization works, of course. We get to buy our cheap Primark tops because in a factory far, far away somebody isn’t paid very much to make them. But in Dubai, you see it every time you step outside.
Nick McGeehan, the founder of an organization called Mafiwasta, tells me it’s more than that. ‘The difference is that the salaries paid in sweatshops in foreign countries reflect the economic weakness of that country. Furthermore, the people who work in them go home to their families at night.’
He was an oil contractor but was so appalled at the plight of these workers that he set up Mafiwasta and is attempting to make a legal case that the UAE government is complicit in these workers’ enslavement. He forwards an email to me he’s recently received from an Indian recruitment agent.
She’s trying to help 133 men she sent to Dubai to fulfill a contract who haven’t been paid, whose passports have been confiscated, who are not just living in inhumane, insanitary conditions but had been denied even basic necessities such as drinking water. ‘It’s very unusual for an agent to come forward, and even more so to have one who actually cares about what happens to the workers,’ says McGeehan. The only recourse, he tells her, is to get it in the newspapers…
Both Secret Dubai and Chris Davidson have fallen foul of the UAE’s censorship laws. The Secret Dubai blog, winner of a Webby award, is blocked – along with My Space, Flickr and Friends Reunited – and Davidson’s recently published book Dubai: The Vulnerability of Success was, like Harry Potter, banned, although the ban has now been lifted.
Mostly though, the authorities rely on editors to self-censor – an even more effective weapon. ‘I defy a journalist who has been here a few months, who has got their child into a school, to rock the boat,’ says Davidson.
I interview a high-profile Emirati academic, and later he rings me up and says: ‘You’re not going to write anything… critical, are you? Our culture is different from yours, you see. But I didn’t say anything negative, did I?’
He points me, as several others do, toward Abdulkhaleq Abdulla, a professor of political science at Emirates University, and possibly the most outspoken person in the country. ‘He says really quite remarkable things,’ the other academic tells me. ‘And he gets away with it. It’s very surprising.’
Maybe he’s fearless. Or maybe it is, as he says, that others need to be braver. ‘We have to have more accountability of the government, more criticism of the policies. More talk about our future and where we are going. Dubai is an amazing place. We are so much further ahead than the rest of the Middle East, but we can’t be first on social indicators and last on political ones… It’s an embarrassment.’
Even more than that, he says, the place needs to take a long, hard look at itself. Because in 2015, he estimates, Emiratis will make up 10 percent of the population. And in 2025, at the same rate of growth, zero percent. ‘At the moment when we have everything, we’re in danger of losing it all – our very identity.’
I don’t go out of my way to track Palmer and Acors down. The case is being heard this week so it’s a particularly sensitive time for them. And anyway, they’re not really the story. They were drunk and foolish and they might pay an exceedingly high price for their actions, but more than anything else they’re simply fallout from an ideological schism that is not of their making.
I don’t look for them, but almost everyone I meet is acquainted with one or both of them. Palmer has been in hiding for the past two months, reportedly suffering from anxiety and panic attacks. And Acors? He’s there in Long’s Bar when I visit. In fact, he’s not just in the same bar, he’s standing drinking with the same group of friends.
I’m all set to question him, but his friends take me aside: ‘He’s just an ordinary bloke. He won’t talk to you. Just leave him alone.’ So I do.It’s true, he’s just an ordinary bloke. In extraordinary place. At precisely the wrong moment.
July 2009- More bad publicity about Dubai –falling apart,
//www.timesonline.co.uk/tol/news/world/middle_east/article6716543.ece
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