Dubai speculators quit amid loan drought

THE classified ads in Dubai now read like an obituary for a real estate market that until a few months ago seemed immune to the global credit crisis.

A Turkish investor, who identified himself as Sebat, took out 10 bright yellow ads in the Nov 25 edition of Gulf News, the United Arab Emirates’ (UAE) biggest newspaper, with the headline: ‘DIRECT FROM OWNER DISTRESS SALE!!!’ Sebat said he used to be able to buy four or five properties at a time and sell them the next day for a profit of as much as 5 per cent.

‘There is panic in the market,’ said Sebat, 52, who wouldn’t give his full name because he’s juggling 60 properties.

The property bubble in the desert emirate - home to the world’s tallest building, most expensive hotel suite and largest man-made islands - is bursting as scarce credit and slumping oil prices have international investors scurrying to dump assets.

That may shatter Dubai’s goal of creating a sustainable economy by building the Persian Gulf hub for finance and tourism, forcing it to depend on oil-rich neighbour Abu Dhabi for financing.

‘Dubai is more precarious than it has ever been,’ said Christopher Davidson, author of Dubai: The Vulnerability of Success (2008, Columbia University Press). ‘If the property industry collapses in Dubai, it will be finished. Dubai’s relative autonomy will come to an abrupt end.’

The emirate’s push into luxury property developments and tourist attractions was diversification on ‘paper sand’, said Davidson, a professor of Middle Eastern affairs at Durham University in the UK.

Real estate prices may drop 20 per cent or more, analysts at EFG-Hermes Holding SAE, the biggest publicly traded investment bank in Egypt, said in a report this week.

Nakheel PJSC, the Dubai state-owned developer of three palm-shaped islands in the Persian Gulf, said on Nov 30 that it is scaling back or delaying work on some of its US$30 billion in projects, including the 62-storey Trump International Hotel & Tower near the Mega Yacht Club on the trunk of Palm Jumeirah.

The sheikhdom may need help from Abu Dhabi and the UAE to service its debt, according to Moody’s. Dubai borrowed US$80 billion to finance its transformation and make up for a lack of natural resources. It has just 4 billion barrels of oil reserves, compared with Abu Dhabi’s 92.2 billion barrels. But Dubai officials say the emirate can weather the storm.

Source : Business Times - 6 Dec 2008