Wednesday, 2 April 2008

The Sorry State of Real Estate in the UAE

It seems like not a single day can pass without yet another extravagant announcement of a new real estate project that defies gravity, the law of nature and the laws of finance.

There is something to be said about the lack of government supervision that extends from allowing firms to issue press releases that are clearly stretching the truth to broken promises that start from delivering these real estate projects late or never, to jeopardizing the reputation of the UAE by mistreating foreign labour.

A curious case comes to mind with Tameer a local development company that claims to have 300 billion dirhams under development[1] which roughly accounts for 75% the GDP of Abu Dhabi. The firm also announced a project “in excess of $20 Billion” in Libya[2] which has a GDP of $36 Billion[3]. Does this make sense to any one as it clearly escapes my understanding? How does the government allow such press releases, and how does the local press publish it without verification. To put things into perspective, this is similar to someone claiming to have a project “in excess of $7 Trillion” in the USA (roughly 55% of the GDP).

Damac Properties, which is one of the few homegrown brands to go regional claims to have a portfolio “in excess of $40 Billion[4]”. This is clearly an example of a company that bit off more than it can chew, a local news report found that out of fifteen advertised projects in Dubai that the company is developing “all are running substantially behind their projected completion schedules”[5] to the extent that investors were threatening to withhold future payments to the developer.

Oddly one of the few publicized cases of real estate developers fleeing the country after selling off plan projects to unsuspecting investors to the tune of AED 14 million has yet to be resolved[6].

Copy Cats

Another issue plaguing the real estate sector that is quite interesting is the copy cat culture that is about to make our beautiful city of Dubai into a Sameville mini-me of other cities around the world. There is more than one project that promises to replicate the Eiffel Tower of Paris for example, as if copying individual landmarks wasn’t enough one project even threatens to replicate the entire city of Lyon in Dubai[7]. A contender for the most profuse project award has to be the Falcon City of Wonders that promises to replicate “the Pyramids, the Eiffel Tower, the Taj Mahal, the Great Wall of China, and the Leaning Tower of Pisa”[8]. Tatweer also has its own replication process going on within the Bawadi project. Don’t people realize that what has made Dubai great is the spirit of entrepreneurial originality? Shall we wait for a project that promises to replicate the entire city of Abu Dhabi in Dubai or maybe the holy shrine of Mecca?

Labor Pains

A different case of construction woes emerged in the Fall of 2007 when 40,000 employees of Arabtech went on strike over low wages that according to the official UAE news agency “turned into riots” with stones being thrown at the police[9], this situation could have been explosive for the entire country if one considers that the size of the Dubai police force is around 15,000[10] personnel, i.e. they were outnumbered three to one. The management of Arabtech must be proud now that they have reported a 115% increase in profits to $93 Million in 2007[11] despite the serious damage to the UAE’s reputation and social security. Basically because the company didn’t meet the laborers demands for AED 90 million increase per year (a sizeable 25% of their profit) the UAE was negatively featured on the front pages of various newspapers, websites and TV stations around the world as a country that doesn’t treat it’s “guest workers” fairly, is this worth the damage?

Other Emirates

Sharjah’s real estate development qualifies to be the least planned in the UAE, with problems in parking, electricity cuts, water stoppages and general frustration on the sorry state of the roads a daily headline in the local press all of which seem to be on course to staying the same. Abu Dhabi should pay attention to the plight of its sister emirates before launching humungous projects inside the relatively calm capital island that will result in traffic chaos similar to what Dubai is experiencing today.

How do we even account for such a fabulous collective failure of engineering imagination and planning? Clearly the UAE authorities were not prepared for such a fast pace of development. For a country that proudly claims to have $500 Billion worth of real estate projects under development[12] it is high time for the federal government to finally enact serious nation-wide laws and regulations that will set this haphazard industry straight.






[6] Ibid








pendolino said...

Sultan - thank you for another interesting post that brings to attention the issue of rampant misleading marketing and I appreciate how you put those headline numbers into perspective. one needs comparables to understand the scale of the exaggeration that has become the hallmark of GCC development by greedy and imprecise private sector companies. if they applied the same principles to the construction of their projects then i would really be worried about the quality of those buildings and the poor inhabitants within and its probably the reason i would refuse to live anywhere above the 20th floor or so in Dubai.

Damac is a particularly egregious offender when it comes to hyperbole and marketing spin and they also seem to be the pioneers of the 'no discount but free car and boat' model. they're going to be listing Damac Kuwait and I hope, for the sake of their investors, that they're not giving away free shares to the buyers of those apartments.

Sharjah is of particular interest in the UAE given its quite conservative position next to the freewheeling and ultraliberal other emirates although they are not going to be left behind with the mega developments given the interesting Nujoom (stars) mega development that is already underway. Looks nicely designed to say the least.

finally, I am surprised that a blog like this is quite lightly followed as evidenced by the sparse comments (i am the first one here) to very engaging subjects. please keep it up.

Librahitech said...

Hats off to Sheikh Sultan Bin Saud Al Qasimi for his down to earth review of the sorry state of Real Estate in the UAE. Having arrived in the UAE in 1976, and seen the development taking place, especially in Dubai, one wonders what is there for the common man. Everything is too big, and affordable only to the super rich. How do these people become so rich overnight, may we ask - Librahitech.

David Sucher said...

A very interesting post indeed which puts Dubai real estate into an entirely different perspective.

Anonymous said...

Sultan! Bravo again!! I have never been to Dubai!

All I hear in the West is have you been to Dubai! I am sure it is a great city ! Yet all I hear is the booming skyscrapers, the Sultan is right when he says this is a mini me of the West. The concrete jungle is already looking like a cemetry with very extravagant tombstones.

I hear it is the new Disneyland for businessmen and retired people.

How long will it be before Qatar does the same and followed by rest of the Gulf countries. Don't you think there will be an oversupply, then what!! who will take the Responsibility!

If I were to see a Muslim country, I want to see one with it's great culture, heritage, art and tradition. I want to see coffee shops with an Islamic decor not the same as everywhere else. I want to smell and taste the culture.

I take my HAT of this young Sultan.

God has given us all Intellect and this Sultan is using it well.