Monday, February 2, 2009

Dubai: The Next Real Estate Mecca or just a Desert Mirage?

A member of the Llenrock team visited Dubai in December 2008 and had the following to say about his experience there:

Dubai... Where else can you find bizarre palm-shaped archipelagos, space-age skyscrapers, air-conditioned bus stops, man-made islands designed to resemble the world from space, and the tallest man-made structure in human history? Oh, and if that doesn’t do it for you, you can go sand-boarding down desert dunes in the AM and then ski on the indoor slope at what used to be the world’s largest mall after brunch at the world’s only ‘seven-star’ hotel. That aforementioned mall is no longer the biggest because the Dubai Mall, three times larger, just opened this year. Sheik Mohammed, the $10B man and ruler of Dubai, had also privately confided to about a dozen different media groups that this “was only the beginning” (Not surprisingly, he has been MIA since oil dropped to $30 a barrel and the ensuing economic crisis).

The little pearl-fishing town turned major metropolis in just a few decades is still chugging least with optimism if not actual construction. The list of future projects ranges from the pretty cool to the downright ridiculous and include an all-underwater hotel (with no construction start in sight), Dubai World – advertised as the largest mega-resort on earth and slated to open around 2020, and the Waterfront by Nakheel, a development marketed as twice the size of Hong Kong.

So is it real or all talk?

From conversations with a senior executive at Nakheel, and other local developers, I got the sense that the overwhelming majority of these projects have been delayed if not shelved. Emaar, one of the world’s largest real estate developers, saw its stock plummet by over 90%. It’s hard to justify an underwater hotel when that happens. But then, few expected the world to come to a screeching halt. And for any who think the impact of the US crisis on the global economy is being exaggerated, look no further than the hotel I stayed in. After a few days at the Ibis World Trade Center hotel, one of the best values around dharam for dharam, I decided to explore the market and called around. Every hotel was not just bleeding, they were hemorrhaging. I ended up negotiating a stay for a friend and myself at the Marine Beach Resort and Spa, a five-star luxury resort with private beach on the gulf, meandering gardens, and fourteen F&B outlets for 600 dharams a night. It retails for 1500, especially in December -- Dubai’s high season -- but occupancy was a dismal 39%.

Despite optimistic predictions by the Khaleej Times, a partially state-sponsored local newspaper, we do not believe the real estate market will bounce back in force by 2010. Rather, we are more inclined to believe that the pain felt in Dubai's capital markets has only begun - and that it will be a long time coming before it returns to pre-bust (2006) levels.

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