December 06, 2009

Dubai


Dubai has transformed itself to an important trade center and business port for both Western & Eastern businessman. It has attracted individual investors & multinational companies to set up businesses in the city and at the same time provide the biggest banking and financial market to them. Dubai is now a mega city with a rapid development since the past decade. Besides business, the government has also putting up lots of effort to attract tourists.

Dubai economy depends heavily on property development beside its Oil & Gas industry. Just to name a few landmark & signature building such as the beautiful world & palm shape island (Jumeirah), 7-star Burj of Al Arab, world's 'going to be' tallest building Burj Dubai, in-house ski resort etc. Since 2007 I’ve been 3 times in Dubai (including 2 long flight transits) and for each time the structure of this city appeared differently.

However recently, Dubai’s investment wing & property conglomerate, Dubai World, has entered into a financial crisis. The crisis started when the company requested to delay its debt payment, expected at US$59 bill of liabilities (with total debt US$80 bill) to another 6 more months. The delay will subsequently affect the international creditors which could see them suffer significant losses if the Dubai World were to default on all or part of the $59 billion debt. This news has led to a decrease in oil price and also world bourses across the world.

CRISIS

Dubai’s mega property development is too rapid, but that is not the sole problem. The main problem was the industrial development especially on its Oil & Gas is not balance (O&G contributes only 6% of GDP) to Dubai’s mega property development. At the end of the day, Dubai Central bank relies on international creditors to finance its property development (contradictory with Abu Dhabi. The city is very unlikely to be affected by Dubai's crisis as their funding is derived from exporting of oil & gas).

The 110 storey Burj Dubai

When the mega development is too rapid in a short period of time, property investor starts to feel the income generated is not balanced with the investment made and it might took them very long time before gaining the true value. These negative speculations eventually pull down the property value in Dubai for the last one year or so. The property market down to almost 50%. With high housing rental rate and job market falter in the last few months, lots of expats and foreign workers left Dubai in a blink of an eye. (Dubai’s majority 2 millions foreign workers come from India & Pakistan while local Emirates cater only 800,000).

Property & real estate investment can also be viewed as a share market investment. Any bad speculations may bring down its value. This is what has been knocking down Dubai lately. Other views on the crisis are due to the bad management & ill planning of Dubai Central Bank, property developer’s opportunism, cronyism & egoistic of the Al Maktoum and many others.

SPECULATOR & WORLD TURMOIL

The question now whether the Dubai financial crisis will lead to another round of world economic downturn? Talking about market speculation, we have had been in the same situation back in 1997 which saw KLCI down to record low of less than 400 points at that time. Obviously international bank like the Citygroup Inc, property firms from the US, Japan, Korea and Australia will have a direct impact of this crisis although some experts believe this will not lead to another world economic turmoil.

“In the long run, the crisis will have an impact to market confidence, financial activities and capital investment which may take a decade to be restored” comment made by MF Global Analyst, Manus Cranny.

What about Malaysia? Are we gonna feel the effect of the crisis too?

2 comments:

kat said...

Hi,

Good one on Dubai. If you are looking for corporate housing rentals it doesn't matter if you are a corporate and searching for rental or properties or you own a property and looking to rent out http://tchnetwork.com/blog/ can help. Their service is amazing.

Thanks,
Jack

capri... said...

PNB, malaysian investment wing is proposing to the government to build a 100-storey building to boost up nation's economy(see Berita Hairan 07 Dec 2009). The 'earlier' construction cost is estimated at RM1.5 bill and work expected to start in Q1 2010. Do they ever make any necessary study, benchmarking perhaps?

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