Dubai is back to its old tricks. More proof came in
October, when a local firm unveiled plans for a replica of the
Taj Mahal, five times bigger than the original, and housing a
Research from Citi says
that over the past year the emirate has launched or relaunched
developments worth at least $11 billion. These include a new
reclaimed island, lagoons, lakes and more canals, the
UAEs biggest hotel complex, and a new, 1,100-seat
Property transactions are
not yet at
pre-2008 levels, but are heading that way. According to
CBRE, Dubai property has seen some of the most dramatic price
rises in the world this year. Prices of mid-range apartments
and villas are up around 20%.
In the short term, this
is great news for indebted state-linked conglomerates, which
are heavily exposed to the local real estate market. Nakheel, a
state-linked developer that the government had to take over
directly after 2009, said last month that it had recently
completed land sales worth the equivalent of $114 million.
As Citi points out,
Dubai-related risk assets have rallied strongly in recent
months. Yet banks and bondholders are still facing what Credit
Suisse estimated in early 2011 would be around $35 billion of
Dubai-related debt maturing in 2013 and 2014.
It was only three years
this market crashed spectacularly. Projects were cancelled
or put on hold and key state-linked conglomerates were
subsequently forced to beg banks to reschedule debt.
Since 2009 Dubais
recovery has been as impressive, if not as spectacular, as its
initial boom and crash. Its status as a re-export hub between
Asia, Africa and Europe has brought benefits from continued
growth and increasing trade among emerging markets. Dubai
airport is now the second busiest in the world.
As petrodollars flow into
the region, Dubai is a safe haven for commerce, investment and
tourism in a wider Middle East ever more blighted by political
instability. Hotel occupancy is back up to more than 80% and
even the biggest shopping malls are expanding.
Property prices are
recovering after the crash, benefiting from the booming local
economy, as well as the post-2008 slowdown in property supply.
But prices might soon reach unsustainable levels, and as more
projects are announced, more supply will come onto the
Now developers are even
returning to pre-2008 methods of selling properties off-plan,
before even starting building. This is particularly conducive
to pure speculation as buyers at the planning stage sell on,
sometimes within a matter of days.
Overall, the convergence
of interests in Dubai around an all-out return to the bubble is
probably stronger than any technocratic urge for a more
measured recovery. Dubais model of economic governance
has not changed much since 2008.
Dubai might be a regional political safe haven, but it
isnt an economic one in global terms. A return to risk-on
mode in its real estate market will make Dubai even more
vulnerable to a sudden downturn in China, US fiscal troubles
or a deeper crisis in Iran.