My Thoughts on Dubai
Even though its been an extended holiday weekend, the financial markets were hit pretty hard on Friday with the news coming from Dubai about their enormous debt burden and the need for them to delay a large payment on that debt.
Over the last few years Dubai has been the center of all construction activity in the world, the city-state has come from being a barren desert to a major city with high rises, luxury shops, apartments, and offices at every turn. Everytime I came across a boom-time story about Dubai, I become even more skeptical about the longterm prospects of the area.
How is it possible that an area of that size can sustain that much development in such a short amount of time. How can they fill so much office space, hotel rooms, condos, vacation homes, luxury retail stores, etc. Where will the people come from? Do you actually expect millions of people will get up and move to Dubai in such a short amount of time? It seems the only legitimate “industry” that Dubai has was based on the expectation that the area would continue to grow and prosper; the question always remained (and continues to do so today) is: What would be the economic impetus that would enable it continue to grow and prosper.
Dubai has a population of 1.4 million people, from stats I’ve read – 90% of those people are there for construction jobs of one type or another. Even countries such as China – which has a population of over 1.3 BILLION (over a much larger area of course) is not on a building boom like Dubai. What were Dubai’s rulers thinking? How did they expect to sustain all of this? What were the foreign developers thinking?
If you look at most developed countries and the large cities within them – they exist based on a certain unique industries. The cities and countries have slowly grown and developed based upon those industries over centuries and decades. Dubai wasn’t even on the map 10 years ago. Most American people have never even heard of Dubai until the last few years.
Sure, Dubai has oil – but all the oil fields are owned by the Government. Tourism is there, yes, the weather is always beautiful and beaches are nice – but the heat is at times unbearable which ends up putting a limit on the tourism potential. Who is going to go on vacation to Dubai – a 12 hour plane trip from NYC – to sit on the beach in 100% humidity and 120 degree desert temperatures? Not very many people.
Could the rapid development of Dubai end up being one of histories largest mistakes? In 10-20 years, will Dubai become a barren, abandoned waste land?
Money may buy buildings, it may buy roads, but after awhile Economics 101 kicks in and reality hits.
Related posts:
- Dark Side of Dubai
- Dubai World Giving MGMMirage It’s Biggest Problem Yet
- Introducing the aloft Long Beach – Thoughts?
Category: commercial real estate, construction, hotel financing, real estate
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You keep getting it wrong–Dubai has no oil. In previous post you said IStar has no management/development experience. They own John Q Hammons and run their properties through Atrium in Scottsdale. And also JQH in further development. If you are going to be taken seriously, get it right
Jerry, Thanks for your comment. I looked into the Dubai/Oil issue and Dubai does have oil – just not alot.. And (I was wrong in my blog post) that is not where most of their income comes from.
In regards to iStar having no management/development experience – you are correct that John Q Hammons is partially owned by iStar, but (from what I’ve been able to gather – please do correct me if I’m wrong) iStar does not participate in their day to day management/development.
“Money may buy buildings, it may buy roads, but after awhile Economics 101 kicks in and reality hits.”
A very timely quote, and I believe it applies to a lot more than Dubai (hint: look all around us). Thank you for a very pertinent article. Hope your passions continue to enlighten and entertain in equal measure.
Andrew – Just a quick comment to your view on Dubai not really being a viable tourist location. Generally, your comments are fairly well thought out, but to say that because Dubai is a 12 hour flight from NY and its too hot, why would people go, seems rather short sighted to me. Perhaps it wont be what South beach is to NYC, but the fact is that it is hugely popular to regions that are but a few hours from Dubai: India, Saudi, Russia to name a few. And do not forget, that there are two main things about Dubai that will make it a destination that, in the long term, wont go anywhere. In fact, these will make it grow. Money laundering and women.
The MENA region needs access to women, and many many countries need a place to park cash.