Dubai’s downturn
The recent financial crisis and the effects that it has had on the region are proving to be a much more frantic time for Dubai than was previously thought. Regional banks and governmental organisations had leveraged themselves heavily from the capital markets and into the real estate industry confident of future growth. Larger developers (and some smaller ones) took on large land and construction commitments, payment of which was met by rapid off plan sales and easy access to the credit markets.
As liquidity has frozen and sales on many the expensive projects have stalled, banks have realised they are under capitalised to cope with even a moderate rise in loan default rates and any smaller developers over exposed have to rethink plans/ stop building until new financing arises.
When will this be?
Although information is scarce in the Dubai it is widely held belief that the regions sovereign wealth funds are moving frantically behind the scenes to re finance banks and shore up government backed real estate companies such Dubai Properties, Nakheel and Emaar. Come Feb/March the picture should be clearer, but expect much more conservative expansion plans and a period of consolidation as all funds are directed toward projects under construction.
How this leaves the landscape
It seems the face of the UAE is changing as a result. There is little doubt that Abu Dhabi will emerge as the commercially strongest state of the region and may even find itself in ownership of a few Dubai assets. However on my recent visit there was another thought that struck me.
Dubai as a tourist destination - apart from the shopping - could be damaged significantly if buildings remain half finished. This may lead to its more northerly neighbours - notably RAK, benefiting from being slower off the credit consumption mark than Dubai. Less half finished development projects, a much nicer coastline and proximity to other areas such as Oman make it a better option for tourism today and in the future.
Although Dubai beats it for jobs, restaurants and entertainment now, RAK has the UAE's (Abu Dhabi included) first offshore solar power venture www.solar-islands.com, well thought out construction and infrastructure projects, steady attraction of business locating there and an airport being designed to accommodate private space travel (whenever that becomes a reality) but already large enough to accommodate its visitor expansion plans.
Much like Dubai itself visibility remains poor for the view when the dust does settle. However in this case of the UAE it would be unwise to right off the old fable of the tortoise and the hare.