There is no question that Dubai’s luxury real estate market is facing major issues at the moment, despite the constant denials and positive-spin press releases being issued, some developers are facing up to reality, and the number of canceled or delayed projects makes a mockery of announcements of new projects. Dubai would not have offered $20 billion in bonds last week if all was well. Incidentally, Abu Dhabi immediately bought $10 billion of said bonds.
Lack of Transparency
Dubai’s real estate industry faces some massive hurdles if it is to recover, not least of which is an almost total lack of transparency and an apparent willingness on the part of many real estate agents to actively mislead buyers and propagate the myth that Dubai is immune to the financial crisis. Just a few months ago, Colliers International, a “well-respected,” real estate consultancy firm, put out a report stating that property prices in Dubai had fallen just 8% in the fourth quarter of 2008. This would appear to be a deliberate attempt to mis-lead potential investors as it turns out that prices actually fell between 30-50%. Prices for luxury apartments on the Palm Jumeirah are for sale at a full 50% less than last year and still not moving. Many expect the fall to continue and see a likely further 50-60% drop in 2009.
A recent full-page advertorial in the Riviera Times, an English-language newspaper on the Cote D’Azur stated that “Dubai’s property market has seen price substantial growth in 2008 and has proven strong enough to weather the credit crisis,” . The advertorial in question was paid for by DubaiPenthouses.ae, and was disguised as an editorial piece. Much of Dubai’s luxury property boom was based on selling properties to British and German small investors. They have now dried up and the smaller real estate agents are dropping like flies.
Just yesterday, 32 group, made a statement claiming that “Investors in Dubai’s real estate sector can still achieve a minimum 15 per cent annual return on investment despite the slowdown in the sector.” Business 24-7 AE.
That is 15%. Minimum. Guaranteed. Except that it is not guaranteed, and should you lose your job while waiting for this guaranteed 15% ROI, you have 30 days to leave the country or face fines and imprisonment.
Unfortunately, the response of the Dubai government to an increasing amount of negative press has been to draft a new media law which would make it illegal to publish “misleading news that harms the national economy” and for “deliberately publishing false news,” both of which carry $136,000 fines along with a fine of $272,000 for “insulting,” members of the ruling class. Local journalists are up in arms – “We reject this law,” said Mohammed Yousef, the director of the UAE Journalists Association, saying journalists were puzzled by the vague wording of offenses such as “false news” and misleading information on the economy.
“You could interpret every news item as misleading … particularly since the economic indicators are unpredictable,” he said.
Of course, the local ruling class just happens to own many of the more well-established publications and Al Khaleej, owned by the Arab Media Group favor the new law and complained about the “tone of exaggeration and panic,” in the international and local media. “It is derived either from ignorance … or it suggests the existence of a malicious campaign whose masterminds are trying to make use of the current situation to undermine” the country, the paper said. Just because you are paranoid, does not mean they are not out to get you. In the meanwhile, you can say what you like about Dubai – as long as it is good news. I certainly don’t consider myself ignorant of the situation in Dubai, despite their best efforts to keep me in the dark.
Certainly two recent media catastrophes were splashed all over the international news scene, and neither of them bode well for Dubai’s attempts to integrate into Western culture. Dubai’s first “International Festival of Literature,” advertised as the “first true literary festival in the Middle East,” came a cropper when the festival organizers black-listed Geraldine Bedell’s novel “The Gulf Between Us,” which featured a gay sheikh, prompting Booker prize winner, Margaret Atwood to pull out of the show. Apparently there are no gay men in the UAE. She has since backed down for some reason, and made two virtual appearances via videolink from Toronto.
Another media disaster hit the news when Israeli tennis player, Shahar Peer was denied a visa to compete in the Women’s Dubai Tennis Championship. The Wall Street journal withdrew sponsorship from the event as a result. One of the other major sponsors is Barclays Bank PLC, and seeing as they are surviving purely from cash injected by the Qatari royal family, I have a feeing they will not be pulling out. None of this prevented Mayor of Washington D.C. Adrian Fenty from paying the tournament a visit.
Other recent culture clashes include the case of Mamie Pearce, a British woman married to an Egyptian man. Ms. Pearce was sentenced to 4 months in prison by a Dubai court after her husband accused her of adultery. Police entered her home and arrested her because she was inside the house with a male friend. Ms. Pearce was not allowed to represent herself in court, and custody of the couple’s 3 children was immediately awarded to the husband. This is often the case as Dubai operates under Sharia law, which heavily favors the man. Ms. Pearce is currently in hiding, but unlikely to avoid the jail time, after which she will be immediately deported – without her children. The Telegraph.
Dubai’s hotels have taken to handing out pamphlets explaining the risks of displaying public affection after a well-publicized case of a British couple being arrested for having sex on a beach. Public displays of affection are frowned upon in Dubai and there have been several arrests for kissing in public. Sex outside marriage is illegal, as is cohabitation, adultery and homosexual behavior.
A recent “public awareness campaign,” includes undercover police patrols along the beaches and watchtowers to crack down on topless sunbathing and “indecent behavior.” Dozens were arrested last year for “disturbing families enjoying the beach.” The city is also installing signs warning tourists in Arabic, English and several other languages not to sunbathe topless or change clothes in public. My thinking is that this should be in the sales brochures, not on the beaches.
Scandals and confusing laws
Dubai is hastily scrambling to write new laws, in fact there have been dozens written over the last year or so, some of them contradictory. All the time the real estate market was booming, there was no reason to regulate. Now all of a sudden, faced with the same issues the rest of the world is facing plus a few home grown issues – job losses, foreclosures, lack of credit, Ponzi scheme developments coming to light and laws that are confusing, un-tested and heavily favor the developers and landlords, many of which are government-owned, Dubai is reacting. And not in a good way. Even as the Burj Dubai reached a record height, 13 Australians were arrested recently over alleged bribery and fraud charges. All of them involved in the property development world. I am not suggesting these men are guilty or innocent, although the staggering amount of property frauds perpetrated over the last few years suggest every one in the industry is guilty – none the less, one thing worth bearing in mind if you are considering a move to Dubai is that U.A.E. law allows suspects to be held indefinitely without charge.
During the boom, the government encouraged workers to leave the public sector and find work in the private sector. This has backfired, and as job losses in the construction industry mount, the UAE Labor Ministry passed a decree last month to protect local employees in the private sector, following the layoff of 20 nationals by the local corporate retailer and real estate investor Al Futtaim Group. This of course, will also backfire, given that it is now much harder to fire a local than a foreign worker. Foreigners are easy. You can fire them, refuse to pay any severance due and they are obliged to leave the country within 30 days when their visa expires.
Which has prompted yet another new law. The current rules state that any company employing a foreign worker must immediately notify the authorities and the worker’s bank should that employee be laid off or fired. This means instant withdrawal of credit, instant withdrawal of work visa – and 30 days to leave the country or find another job. Dubai also has debtor’s prisons. Thousands of cars are being abandoned at Dubai’s airport as ex-pats leave everything behind rather than risk a jail term for unpaid bills. This is of course, being strenuously denied by the authorities. The new law on the table at the moment is an extension to six months if the foreigner owns freehold property.
This latest law is intended to encourage confidence. “The six-month freehold visa, set to be launched in the coming weeks, will encourage investors to buy property in Dubai, industry experts say.” Gulf News.
Presumably, these are the same experts that think Dubai’s luxury real estate market is immune to the financial crisis.
Pollution. According to The Times, “A noxious tide of toilet paper, raw sewage and chemical waste has transformed Dubai’s most prestigious stretch of shoreline into a foul-smelling health hazard.” Not good news if you were hoping to take a dip in the ocean, and the local yacht club was forced to cancel regattas last year.
The other pollution issue is oil spills, and tanker captains are still in the habit of cleaning their tanks out at sea rather than the Khorfakkan port in Sharjah, which is actually struggling for business and getting 50% of the work it could handle.
Prostitution and AIDS. Yusuf Abdullah of Media Monitors sees this as another issue facing Dubai. According to a recent article: “Most large hotels are little more than dens of prostitution. Hotels are permitted to issue guest permits to bring people from outside. In order to attract customers, many hotels bring girls from Central Asia, Russia, Romania and Western Europe. These girls are provided free accommodation in the hotel for three months while they are expected to service hotel guests. Each hotel has a club where girls enter for free while men must pay 100 dirhams. Alcohol is available and consumed in large quantities. Customers come to these clubs to pick up foreign girls. It has been pointed out to the authorities in Dubai that they are sitting on a time bomb. Girls with such loose moral character are likely to be infected with the AIDS virus. There are already reports of AIDS spreading among the local population because of the behavior of emirati men who then infect their wives.” Media Monitor.
I am not so sure that the “loose moral character,” of the girls is to blame here. No pimps, hotels or customers, and the issue is moot.
Using foreign labor. Many purchasers in Dubai seem prepared to look the other way in regards to the hundreds of thousands of immigrant laborers used in the construction industry. Once again, transparency is an issue and a lot of hard work goes into keeping these workers “out of sight and out of mind.” No one enjoying the luxuries Dubai has to offer really wants to be reminded of what amounts to slave labor that went into building the same luxury. Perhaps “indentured servitude,” would be a more apt description. Most authorities deny there is a problem, but the fact is, many workers are imported under false promises of high pay, immediately have their passports taken on arrival and are forced to live and work in squalid conditions until the debt incurred in bring them over is paid.
All the time there was work, they were kept busy, but with the construction industry slowing, one has to wonder just what will happen to the estimated 400,000 Indian, Bangladeshi and Pakistani laborers now they are no longer needed. Fires in Dubai are already numerous as the workers attempt to cook food over open fires in crowded living quarters, and an unspecified number of workers have already died in these fires. Protesting is illegal, and hundreds have already been jailed for striking for more pay.
I am usually a “the glass is half empty but you could always fill it up,” sort of person, but Dubai is facing more than one issue. Certainly the credit crisis has bought things to a head, and the financial issues alone would be enough to suggest that Dubai will crash harder than any other market. Even though Ahu Dhabi has made it clear that they have no intention of allowing Dubai to collapse by bailing out Dubai’s two biggest lenders, injecting an un-disclosed amount of capital last year and now buying $10 billion in Dubai bonds, whether this will be sufficient is a big question mark. Dubai needs to refinance a minimum of $15 billion this year, and is currently some $80 billion in debt. There is a staggering amount of property on the market at the moment, much of it unrealistically priced, and an estimated 70,000 new units will be released in 2009, mostly in the luxury real estate sector. Careful consideration need to be done before buying property in Dubai.
Can Dubai somehow deal with the clashes between Western and Middle-Eastern culture? Can they clean up their act and begin attracting small investors again? After the shoddy treatment by many developers, this will require a lot of work and, much as I hate to say it – even more new laws. Pollution issues on the beaches need to be dealt with; medieval laws and labor practices involving hundreds of thousands of workers need to be addressed.
Any single one of these problems would be relatively easily dealt with, but the combination of problems may be insurmountable. I have to admire the vision that started Dubai’s boom, but the obvious differences in cultures remain a problem for the future. It is not practical to have one law for locals and one for foreigners, and I question both Dubai’s long-term sustainability, and the ability to combine extravagant displays of wealth and the ready availability of alcohol and prostitution with a large pool of unhappy labor and strict Sharia laws.