Diversification Dubai's Downfall?
The Economic Crisis Exposes Dubai Weaknesses, Affords Opportunities
Nov 29, 2008
Diversification has removed some of the insulation from the oil industry in Dubai, exposing it to the same forces as other nations. Unemployment in some sectors and fewer opportunities for making good money fast are already a reality. On the other hand, the market lull, though painful, will give the city an opportunity to develop its infrastructure, correct the real estate market and tailor its economy for when the tide turns.
Construction and Real Estate in Danger Zone
Dubai is no longer oil-dependent - ever since the government, led by Sheikh Muhammed Al Maktoum, decided on diversification from the oil, construction has been the economic engine–but suddenly the heavy sounds of construction no longer occupy the airways. Today, investors are seeking legal injunctions against developers who don’t develop, and developers are expecting a default rate of up to 40 percent on the off-plan sales, according to reports in The Nation in recent days. All over Dubai real estate agencies downsize, financing companies merge and banks seem to be teetering on the brink. Abu Dhabi, the oil-rich capital/emirate, has granted Dubai a loan to lubricate the staled economy, and the Dubai government has come forth with its balance sheet in a bid at restoring investor confidence; indicating a $80 billion debt and assets standing at $350 billion.
Domestic Turbulence Preceded Crisis in Dubai
For Dubai the present crisis comes on the heels of a turbulent year which has seen many of the top economic players questioned and sometimes arrested for fiscal wrongdoings. The Dubai government also made an effort to streamline and regulate the real estate industry in an effort to squeeze speculation out of the overheated market. And to top it all off, the underdeveloped infrastructure suddenly came to the surface when waste tankers started pouring waste down manholes leading straight to the sea, forcing the municipality to close down a number of polluted beaches and causing some overseas papers to headline their articles “Poobai”.
Dubai Tourism Sector Vulnerable
Immediately after Atlantis’ opening, a rumor spread, and was quickly denied, that the hotel was charging 10 percent of the original price and had only 26 percent occupancy. Tourism, a notoriously soft industry, rivals real estate for importance in the Dubai economy, and might be as adversely affected as other tourist destinations, but Dubai built the industry with high-earners in mind, many of whom still have money to spend. Dubai’s Department of Tourism and Commerce Marketing claims continued growth in the luxury market, in spite of international trends and domestic pollution.
Confidence and Fear
Shareholders, residents, developers, investors and buyers are nervously monitoring the situation, the government's assurances notwithstanding. The moment has come for Dubai to prove that it is more than just a castle in the sand.
