Dubai Sets Out On Another Building Boom
Source: http://online.wsj.com
#megacity #uae #dubai #economy #realestate
Seeking to cement its position as a Middle East center for transport and tourism, Dubai has unveiled several grandiose construction projects that bear some of the hallmarks of the debt-laden boom years that nearly brought the emirate to its knees, reported The Wall Street Journal.
Last month, Dubai's ruler Sheikh Mohammed bin Rashid al-Maktoum ordered the construction of a new city development named after himself, a project that could cost $10 billion, according to some estimates. It envisages 100 hotels, the world's largest shopping mall, parks, art galleries and exhibition centers. Soon after, he announced plans for a $2.7 billion leisure complex of five theme parks.
Dubai also is pushing its candidacy to host the World Expo in 2020, the first time a city in the Middle East would host this event, which would involve the construction of an exhibition center on the outskirts of the emirate.
While Dubai is enjoying an economic recovery fueled by a surge in key areas such as trade, tourism and transport, it still has to repay roughly $100 billion of debt from the previous property boom, which ended in 2008. The plans raise questions about how the ambitious construction will be financed and whether it will lead to more oversupply in a still-fragile property market.
"Dubai was built with unbridled vision, and the recently announced aspirations will be tempered by lender appetite, competition for finance in other regional markets and increased levels of diligence by more experienced investors," said Rizwan Shah, managing director, corporate finance at Deloitte Middle East. "Funding sources and structures for Dubai will need to be different than those that were used precrisis," Mr. Shah said.
During the boom years between 2004 and 2007, various Dubai-related entities expanded too quickly on cheap debt provided by both local and regional lenders. Once the global crisis set in, property prices in the emirate plunged as much as 60%, leaving banks with a debt hangover they still are wrestling with. When Dubai developer Nakheel was unable to pay back a $4.1 billion Islamic bond in 2009, Dubai had to turn to its oil-rich neighbor Abu Dhabi for a $10 billion loan to stay afloat.
Some are starting to worry that Dubai is repeating the mistakes of the past by stoking another property boom.
"Have we learned? We all say we have, but a lot of people are doing the same thing that they were doing three to four years ago," said Peter Jodlowski, chief financial officer at the Emirates Investment Authority, one of country's wealth funds, at a recent financial conference. "So in five years' time, we'll all be asking: How did that happen?" He and other attendees at the conference were discussing corporate governance in the region and the role banks had played during the buildup to the crisis.
Last month, Dubai's ruler Sheikh Mohammed bin Rashid al-Maktoum ordered the construction of a new city development named after himself, a project that could cost $10 billion, according to some estimates. It envisages 100 hotels, the world's largest shopping mall, parks, art galleries and exhibition centers. Soon after, he announced plans for a $2.7 billion leisure complex of five theme parks.
Dubai also is pushing its candidacy to host the World Expo in 2020, the first time a city in the Middle East would host this event, which would involve the construction of an exhibition center on the outskirts of the emirate.
While Dubai is enjoying an economic recovery fueled by a surge in key areas such as trade, tourism and transport, it still has to repay roughly $100 billion of debt from the previous property boom, which ended in 2008. The plans raise questions about how the ambitious construction will be financed and whether it will lead to more oversupply in a still-fragile property market.
"Dubai was built with unbridled vision, and the recently announced aspirations will be tempered by lender appetite, competition for finance in other regional markets and increased levels of diligence by more experienced investors," said Rizwan Shah, managing director, corporate finance at Deloitte Middle East. "Funding sources and structures for Dubai will need to be different than those that were used precrisis," Mr. Shah said.
During the boom years between 2004 and 2007, various Dubai-related entities expanded too quickly on cheap debt provided by both local and regional lenders. Once the global crisis set in, property prices in the emirate plunged as much as 60%, leaving banks with a debt hangover they still are wrestling with. When Dubai developer Nakheel was unable to pay back a $4.1 billion Islamic bond in 2009, Dubai had to turn to its oil-rich neighbor Abu Dhabi for a $10 billion loan to stay afloat.
Some are starting to worry that Dubai is repeating the mistakes of the past by stoking another property boom.
"Have we learned? We all say we have, but a lot of people are doing the same thing that they were doing three to four years ago," said Peter Jodlowski, chief financial officer at the Emirates Investment Authority, one of country's wealth funds, at a recent financial conference. "So in five years' time, we'll all be asking: How did that happen?" He and other attendees at the conference were discussing corporate governance in the region and the role banks had played during the buildup to the crisis.
