Saturday, November 22, 2008

Fantasy Versus Reality In Dubai.

With the world economic crisis continuing to get worse and worse and the price of oil dipping into the 40's we are witnessing an extremely negative effect in the Dubai real estate market:

> Prices are being slashed by as much as 40% on residences all over Dubai, including Palm Jumeirah. We see more and more "distressed sales" of properties every day. And this will get even worse as the global financial melt-down continues.

> Many projects are being "put on hold" or cancelled altogether by their developers. "We are at the denial stage where lots of developers know for a fact that their projects should be cancelled and they're either not announcing it or they're saying it's going to be delayed," said Mohannad Sweid, speaking on future Dubai growth at the Nasdaq OMX Investor Conference.

> Dubai real estate brokers are losing their jobs at a rapid pace and this too will continue and get far worse, I think. Developers including DAMAC and Omniyat are also letting employees go.

> Foreign investment in Dubai is slowing at an alarming rate due to the slow down and sometimes collapse of the economies of those countries that were investing heavily in Dubai.

> Real estate prices are falling fast in most countries around the world thus creating many very attractive investment opportunities that investors may favor over Dubai.

I could go on and on. But the point is that Dubai must now take a very close look at its "Limitless" anything is possible outlook. In this financial environment announcing one incredible Mega Project after another is no longer reality, it is pure fantasy. I even sometimes wonder if:

- Palm Deira, which is the size of New York City, will ever be fully developed. Where will all the investment come from to completely develop this Mega Project? I even wonder if Palm Jebel Ali will ever be fully developed.

- Dubai Waterfront, planned to be twice the size of Hong Kong, will ever even come close to reaching that size.

- Dubailand, planned to be the biggest theme park in the world, will end up being scaled way back and ultimately not even reach the size of a Disney park.

- Nakheel Tower will ever even be built. A tower that has been planned to soar one mile into the sky seems a long way from reality.

And there are many, many more projects that I could list. All of the Dubai Mega Projects take ENORMOUS amounts of investment capital to build, and the Dubai government alone cannot foot the bill for all of them. Even with the help of Abu Dhabi, without vast amounts of foreign investment there will be huge pull backs in the overall development of Dubai. This is REALITY. There is no bigger fan of Dubai than myself, but times have changed dramatically and quickly and the boom we saw from 2002 to July 2008 is over.

I know some of the Dubai realtors are predicting that in 3 to 6 months everything will be back to the way it used to be. This is pure FANTASY. It will take at least one year and probably much longer for any kind of meaningful bounce back in the real estate market...which is not even at its bottom yet. And I doubt that even when things do get better that it will be anything like it was from 2002 to July 2008. Investors will be much more cautious with their capital after having gone through one of the worst financial catastrophes in world history.

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