In a further sign that the property bubble in Dubai has popped, Nakheel, the state-controlled developer, said it was halting work on a skyscraper that would have stood one kilometer tall, or roughly twice the height of the Empire State Building in New York.
The suspended building is part of a growing list of projects that have gone cold in what was one of the hottest real estate markets in the world. In December, Nakheel stopped work on Dubai’s very own Trump Tower — an $800 million project that was to sit on one of the emirate’s fabricated palm-shaped islands.
Other projects that are reportedly on hold for various reasons include big names like the W hotel and the Four Seasons Hotel.
Moody’s Investors Service sees more trouble on the horizon for Dubai and this week issued its first negative outlook on banks in the United Arab Emirates since it began reviewing them a decade ago. It believes that many small-scale developers that took out loans will go bust as property prices spiral downwards, according to The National newspaper in Abu Dhabi.
From the Wall Street Journal
So in June 2007, I went to Dubai with my father to visit local universities. It was my first time there and my father’s first time in 30 years.
He had previously been there to do a feasibility study for a dairy farm in Al-Ain because at the time there was no fresh milk in the area due to the scorching heat.
Much has been said about the amazing transformation Dubai has done to compete for the title of Middle Eastern (global?) city of the future and it is impressive and far-sighted.
But beyond the brand-name projects, what caught my attention was rows and rows and rows of regular apartment buildings being built simultaneously. I counted 40 cranes in a row on one highway
Now Dubai only has 2 million people and the vast majority are foreign laborers so the only possible market would be foreigners moving to Dubai and they would have to be emigrating there at a pretty radical rate to absorb this type of supply. I figured there had to be availability and maybe some good rental rates (we were considering running a study abroad program there).
“So who was buying all these apartments? Are prices falling? Could we rent some at a good price?” I ask.
“No, they are expensive. Everyone is buying them and making money because prices are going up very quickly. In fact, Saudis are buying whole apartment buildings and keeping them empty just so that they have an apartment building in Dubai“
Oh. Well, that is certainly going to end well...
And yet rents are still supposedly soaring.
Later that year I was in Shanghai, the other construction capital of the world, and there even though it too was bubbly, it was hard to worry about the lead financial city of a country backed with a hinterland of 1 billion people. There will be ups and downs but the long-term future is assured.
Dubai though is possibly the most radical bet in real estate history, an attempt to make something out of nothing.
It is probably the optimal strategy to take the bet for Dubai because if they don't, the game is over once the oil runs out. But I can't think of any modern parallel to what they are doing. Either they will succeed in the medium term and become a major world hub like Singapore or Hong Kong or someday, 100 years from now, the desert will take back over.