Even Dubai feels economic pain
Dubai's dream of having the biggest and best of everything was believed to be impervious to global economic slowdown, but Kelly McEvers reports there are signs the city is feeling economic malaise too.
Looming high-rise buildings on Sheikh Zayed Road in Dubai (Tamara Abdul Hadi)
More on The Economy, International, Middle East, Oil, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: One of the really interesting things about the financial crisis is just how wrong it has shown many of our preconceptions to be. Allan Greenspan admitted as much the other day when he said he was shocked that things have turned out the way they have. Here's another one: Last year, when the U.S. economy first started slowing down, de-coupling was all the rage. The idea that just because we were in trouble, emerging markets like China, or India, or the Persian Gulf were somehow immune, because they now trade with each other not just Europe and the United States. Wrong again. Which brings us to Dubai, once the booming success story of the Middle East. Kelly McEvers reports.
Kelly McEvers: Dubai already has the tallest building in the world. But at a recent real estate showcase, the spokesman for a major developer announced plans to build an even taller tallest building in the world.
Announcer: Cityscape 2008 is looking up, up and even higher...
The new skyscraper will be financed by the government and will climb to nearly two-thirds of a mile high.
Announcer: And will be opening in 10 years time.
This is how it works in Dubai. You announce plans for a flashy new building. Then you sell units in that building before ever breaking ground. Your buyers come from all over the world. One thousand families move here every month to work in tech, health care, financial services and shipping.
Foreigners were first allowed to buy property here back in 2002. Since then, values have increased 20 to 25 percent each year. But now, for the first time, that bubble is starting to burst. Achmed Salozai came here two months ago from Pakistan to sell real estate. He's showing me a photo of a studio apartment in an up-and-coming area of Dubai that his company is trying to sell. I ask him how much it costs.
Achmed Salozai: Two hundred thousand dollars.
McEvers: For a 450-square-foot apartment?
Salozai: Yep.
McEvers: That's a little bit cheaper than New York Manhattan prices.
And that's for an unfinished apartment that overlooks the desert.
McEvers: If you were trying to sell me this place, what would you tell me about it?
Salozai: I mean, I would not try to sell this to you because I don't like this property.
Not only does Salozai have too many properties he doesn't like and can't sell, but the company he works for has stopped paying him a salary. Instead, they've promised him a higher commission on future sales.
Salozai: But with the market situation and everything, we're not being able to sell. We haven't been making any money.
That's because Dubai's real estate is in the middle of a sharp correction. Property values are plummeting and new buyers are scared to enter the market. Those who have already invested in real estate here are starting to pull out because of the global economic crisis. Tariq Khan heads a Dubai-based real estate investment group.
Tariq Khan: For example, we've got several clients in the U.K. who are extremely highly leveraged in the U.K., and now they're feeling that crunch. It makes more sense for them to sell the properties that they were buying for cash here to take care of the leveraged properties back home. And that's what's causing the correction here.
This all begs the question, will flight from the real estate market really make a difference in this part of the world, given huge oil reserves and massive sovereign wealth funds? Yes, says Chris Davidson, professor at Durham University in the U.K. Dubai is part of a larger country called the United Arab Emirates. Its neighbor, Abu Dhabi, is actually the emirate with all the oil and all the cash, Davidson says.
In other words, big brother Abu Dhabi might have to bail out little brother Dubai and that means we'll hear a lot less about Dubai and a lot more about the United Arab Emirates.
Chris Davidson: If the Dubai economy is bursting, if the bubble has burst in the last few months, one might find the United Arab Emirates federal brand being resurrected, as Abu Dhabi can step in and perhaps rescue developers or banks in Dubai.
Davidson says because this place relies on foreign investment, confidence in the brand is everything.
Davidson:Should any confidence be lost, whether over security concerns or confidence in the economic model, money would flow out, one would imagine, just as quick as it flowed in.
Davidson says he doesn't see foreign investors pulling out completely from Dubai. The question is, will their confidence in the place remain a mile high.
In Dubai, I'm Kelly McEvers for Marketplace.
Comments
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From glasgow uk, UT, 09/12/2009
I have visited many countries in my time and i have to say without a shadow of a doubt that Dubai is far the best. I have no doubt that Dubai will emerge from the current economic downturn better that it was before and dare i say it ion a new high. There will always be tourism in Dubai and property prices will start to rise. People can't see the picture here. You missed out on it first time round so here is your chance to invest and make a tidy profit when the market takes off again..... and be assured it will
From beirut, 01/26/2009
Dubai's real estate sector is not passing through a correction but rather it is in deep trouble as one may put it. Quite simply it is not an interesting sector to invest in anymore. From what i learned from this market, there was a lot of speculation going on in other words most appt. that were being brough from the original developper in the preconstruction stage were sold many times before the bulding was completed.It is just like bying and selling merchandise except that merchandise is highly liquid and appt. are not. This created a bubble and a false price escalation. The speculators or investors are indeed running away from what they thought to be lucrative and now whats left are a few humble people who might buy into an appt. to live in and therefore supply is becoming far greater than demand.
From Dubai, UAE, 11/20/2008
Last week,some Dubai banks stopped lending money to expatriates working in real-estate or construction.
Yesterday the largest home-finance company in the UAE stopped issuing mortgages.
Today the newspapers report prices of homes on the Palm Island are down 40%.
Dubai is headed for more than a "correction" in its real-estate market.
With these kinds of problems, who would invest in property here now?
From Baton Rouge, LA, 11/11/2008
In her story on Dubai, Kelly McEvers uses "begs the question" as if it means "raises the question." In fact, to "beg the question" is to assume the truth of the proposition which one is arguing in favor of. (Check in any dictionary as a subentry under "beg.")
From Morgan Hill, CA, 11/11/2008
In the Dubai story by Kelly McEvers (which was very interesting), she misuses the term "Beg the Question". Begging the question is a logical fallacy related to use of circular reasoning in an argument. If something "begs the question", it doesn't mean you then ask a question. Here's a follow-up website with more info:
http://grammartips.homestead.com/begging.html
Otherwise, I enjoyed the story!
Sincerely,
Mark Knudsen
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