The crash in the property bubble is proving to be a major blow, and offices and homes priced at 20,000 $/m² are becoming increasingly rare. They are by no means immune to the crisis, but there is one factor that sets them apart: The United Arab Emirates (UAE) is a wealthy state amidst a growing wave of sovereign defaults. And that distinguishing factor could prove vital if this global crisis drags on, as is to be expected.
In fact, Dubai has no oil (or very little) and its wealth comes from the capital, Abu Dhabi, another of the seven emirates that make up the country. The question is: why hasn’t the growth and boom of Dubai been channelled into the capital, Abu Dhabi, itself, given that it is this emirate that foots the bill? The answer is religious. Both the capital and the rest of the country wish to keep their distance from the debauchery and excesses of Dubai. The aim is to confine the widespread consumption of alcohol and the almost total relaxation of religious customs and prohibitions to that lawless (Islamic) city: Dubai. All that’s missing is gambling to increasingly outdo Las Vegas.
But returning to the impact of the crisis on the city that has seen the most recent development on the planet, we would say that having a wealthy state behind it makes a huge qualitative difference when it comes to facing the coming years. It is true that many projects have been put on hold indefinitely, and that over the next five years, Dubai’s growth will bear little resemblance to that of the past five years. However, the construction of the planned infrastructure will remain in excellent shape during these years of crisis, and this will go a long way towards helping Dubai overcome the current global recession. The state will not go bankrupt, even if it were to have to bail out its own banks. Its public deficit is non-existent because it was never balanced through taxation of society; rather, its wealth stems from vast natural resources in the form of crude oil and natural gas. Therefore, Society will suffer, but it will not drag the State down with it; quite the contrary, in fact.
We’re not saying that investing in property in Dubai is a good way to safeguard our wealth – far from it. But perhaps, as a speculative investment, Dubai may offer added value in the future, once prices have fallen to more reasonable levels. Because whilst we’re still in the thick of this crisis, Dubai will continue to build all the necessary infrastructure so that, when we emerge from it, the city will be in an even more privileged position compared to the rest.
The fact is that this crisis is bankrupting many states, which will find themselves increasingly unable to even maintain their respective countries’ infrastructure as the recession drags on. It is unthinkable to devise a plan for significant growth at a time when national coffers are as leaky as a sieve. Unthinkable for everyone except for a few exceptions such as Dubai, which has the UAE behind it, with firm and clear political resolve, despite a crisis that affects only those states that rely on tax revenue – in other words, the vast majority.
If the future lies in the East, a paradise halfway between East and West stands a good chance of becoming a world-class holiday, leisure and business destination. Right at the heart of an opulent and extremely wealthy Middle East, whilst the world continues to run on fossil fuels.
When we wake up from the nightmare of depression, the global picture will be nightmarish, except in a few parts of the world where the miracle of economic growth will have continued against all odds, fuelled by petrodollars. It is these places that will shape the speculative future.