Dubai Recession – Insights and Benefits

Dubai for many years has defied gravity and prospered as a result of a simple “build it and it will be utilised” strategy. However, it appears as though the current global economic recession and financial crisis has finally filtered through to Dubai. Over the past few weeks, a great number of discussions have centred on a number of key questions; what are the signs, how deep and long will the recession last and what will the outcomes be?

On returning to Dubai after the summer break in early September, it appeared that all of the construction sites were working at full capacity, traffic jams were in some cases worse than before the summer and property development companies were still filling the newspapers with ‘hot’ property adverts.

However, upon returning from a retreat in India at the beginning of October, I have seen a tremendous difference in the activity and stress levels within the market:

  • Construction sites are being either shut down or working ‘normal’ working hours
  • Property development companies have cut their advertising budgets
  • Real estate agents have seen sales plummet in October causing them to lay off up to 75% of their brokers
  • Significant Dubai based companies have not only suspended their recruitment programmes but have actually laid off their HR departments!!!
  • Rumours have been circulating that property developers will likely have to default and that construction companies may have to withdraw from sites due to lack of payment
  • Debtor days have increased substantially
  • Construction material prices have significantly decreased
  • Lending confidence has been severely affected. As a company we attempted to organise a mortgage for an office, having already committed 40% of the funds, and we were informed that we could only have a mortgage of 15%

The market in the Middle East has always been opaque so being able to get reliable economic indicators is not possible. So what does this mean to us, from both a business and personal perspective?

Operating a business in the Middle East has defied logic for the past four to five years:

  1. Costs have soared ( salaries, accommodation and school fees, etc)
  2. Due to market conditions profits have also soared on the back of an economy that was growing on “steroids”
  3. As we enter 2009, business planning is nearly impossible as there are two prospects: firstly that the Middle East defies economic logic or secondly significantly enters into a recession. Both options are equally possible. However, the second approach is more conservative, and unsurprisingly my choice.
  4. During my time in the Middle East, I feel that the current risks of operating have never been greater
  5. A number of significant “niche” opportunities remain in the market and provide optimism

On a personal note, there has been so far one significant benefit of the recession. For the past three years the skyline of Dubai has been constantly hazy and smog like with the amount of dust coming from the construction boom. This morning as I write, the sunrise is truly inspirational with a clear blue sky, something that we have not seen for many years. Secondly as I was playing golf on Friday, the sounds of the birds had returned as the construction noise had completely disappeared!!!!!!

19 Responses to “Dubai Recession – Insights and Benefits”

  1. Vivian Says:

    Hi Tony

    This is good writing. You are our man in Dubai! Yours is the first truthful indicator of rising corporate stress in your part of the world I have come across. I will include the tenor of your observations through my input in the online national press comments pages.

    Looks like it is nearing time to get safely back to Blighty before things get out of hand.

    Are you sure Mowgli is the right vehicle for such times of intensity. As a concept I am sceptical. I think you are being too ambitious and the plan too utopian. You are in danger of being drowned, nay, asphixiated by fugues of goodwill orchestrated and tuned to past (late 20th century, in particular) business models. Better to do nothing than repeat and entrap mortals in the inferno of greed and excess engendered by corrupt and shorttermist capitalism. The modern form of an entrepreneur is unacceptable as the unfolding economic catastrophe clearly depicts. It lacks virtue and is therefore morally degenerative. It is not to be confused with charity that ever present goodness spontaneously unfolding from pure hearts.

    Better to have nothing than to corrupt heart and soul to try and have everything.

    Keep well

    Vivian

  2. Simon Edwards Says:

    In response to Vivian, I would like to say that the the alleviation of poverty remains the top millenium goal.

    People have traditionally responded to world crises through generosity. The 20th century paradigm was to support the world’s poor through aid: an act of generosity, albeit often driven by the self-interest of the donor and being financial in nature. But this is not sustainable. From government aid to Live Aid there has never been a challenge in raising huge amounts of money. Collectively we can salve our consciences by seeing a tiny proportion of our taxes spent on overseas aid or making an online payment or dropping coins in a collection tin – job done. Others can work out how to spend it: and generally they spend it badly or it ends up in the Swiss bank account of a corrupt dictator. Nothing changes. The world must now create a new model for the 21st century based on empowerment and co-operation. True generosity stems from a generosity of spirit: a giving of ourselves with no expectation of return. What if it were possible to create successful businesses which delivered both a return on investment and began to alleviate poverty? Through nourishing entrepreneurship, economic, social and political change can be driven in a way that could achieve this. Furthermore it is now in the direct interest of business to engage with the world’s poorest. As the developed economies move into recession those at the bottom of the pyramid (BOP) represent a potential market of 4 billion people. What is needed to change is the business model.

    We need a fundamental shift in perspective. Traditionally businesses have been created to serve their shareholders. Fortunes have been made and lost. The economic cycle moves inevitably from boom to bust. It is difficult to avoid the temptation of greed and if a business model is ultimately based on this, some universal morality within the Universe inevitably brings it down. Look at Enron and now Lehmann Brothers. But there is another way. A new business model is emerging in parts of the developing world. CK Prahalad describes it in his book The Fortune at the Bottom of the Pyramid. This model creates products that are accessible and affordable to the world’s poorest.

    This is where the Mowgli Foundation will make a difference: matching skilled and experienced mentors with budding entrepreneurs in developing countries, beginning to unleash the extraordinary potential that remains largely untapped. In addition to providing opportunities for visionary entrepreneurs, small businesses become important drivers for economic and social growth in these communities: providing jobs, capital, and an improved economic outlook and future for many.

    Entrepreneurship is an honourable activity, since it generates jobs which give people dignity, self-sufficiency and self-respect. You can’t buy these or have them dished out in aid, charity or benefits. In the old maxim we aim to give the developing world a fishing rod rather than a fish.

  3. ABE ZACHARIAH Says:

    Dubai will recover this finacial Tsunami with in 6 months. Sure… it will happen. From coming May onwards there will be dramatic change and gradually will up, retain the old pace by on 2010 April.

    A good plan is now working and under process.

  4. Gurmeet Singh Says:

    Dear Zachariah

    Although you haven’t mentioned any facts why you feel so optimistic about Dubai prospective, however, I tend to agree with you up to certain extent that within a short span of time Dubai will overcome these crisis.

    The logic lies in when one sees the growth of Abu Dhabi (wherein no impact on progress is whatsoever is reported so far), and to the fact that the government of Abu Dhabi has strongly advocated that economies of Dubai and Abu Dhabi are interdependent and the government(s) will do whatever it takes to make sure that economy of the country as well as individual emirate(s) do not suffer due to such crisis.

    I just hope that the crisis is over sooner than later. Keeping my fingers crossed!!!

  5. Anoop Pattat Says:

    Abe and Gurmeet

    Dream on guys!! Abe’s wish of things normalizing around april 2010 is somewhat optimistic, I’ll put it somewhere in the mid 2011.

  6. Devanand Sony Says:

    iF ITS GOING TO RECOVER IN 2010, THEN THE PEOPLE OF uae WILL DO IN THEESE DAYS.
    all business are effected and going slow by 50%
    every second mouth is asking somthing differ then other and roumers are very storng about peoples leaving UAE, but how many are going and what is the dubai future
    please coments

  7. Tony Bury Says:

    Devand,

    There is no doubt that parts of the UAE are entering a recession and many people have left Dubai over the past three months. Dubai is an integral part of the UAE and through Abu Dhabi has a very strong financial partner. I am sure that we will see many developments over the coming months to ensure that the Dubai economy does not collapse. But some tough decisions will be required as in many parts of the world. I am also sure that Dubai and the UAE will come out of this period far healthier and able to continue their remarkable period of development and prosperity. But yes Dubai has been an unhealthy “bubble” for a number of years, which could not be maintained in normal periods, but in the light of the world conditions, it is not surprising that it is now suffering.

    Regards,
    Tony

  8. Andrei Says:

    GUYS,

    The word of mouth is strongly affecting Dubai negatively in respect of real estate and properties.
    As you all know, for the last 5 months, rumors that the properties value and rents will go down, have made people wait and refrain from undergoing any rental contract, until prices went down. Now since MOST people are waiting, and FEWW rental contracts are being made, rent MUST go down. Isn’t this the supply demand theory?
    BUt what i see today, is that most of the rent did not go down, while people are leaving Dubai, their homes, their cars and their loans.
    WHY?

  9. Tony Bury Says:

    Dear Andrei,

    In a normal market you are quite correct supply and demand works in this manner. However surprisingly the degree of bank debt that was used to fund the purchase of property in Dubai is well below normal property markets elsewhere in the world. Therefore many of the property owners do not have debt interest to pay and indeed those that do have minimal debt interest payments as the interest payments are low at the current time. This coupled with the origins of the equity sources make this market different to most markets

    Hope this explains to some extent the dynamics of the Dubai market.

    Regards,
    Tony

  10. Even services for the wealthy make recession adjustment - Jan Norman on Small Business - OCRegister.com Says:

    […] oil prices, failing financial institutions and worldwide recession. If you doubt it, read Tony Bury’s description of Dubai in recession. […]

  11. QUTUBUDDIN Says:

    DEAR SIR
    IF SYSTEM IS WORKING OK. THEN THERE IS NO
    PROBLEM RECESSION IN DUBAI
    THE FOLLOWING POINT ARE TO BE NOTED
    1. KEEP DEFFERENCE BETWEEN RICH,MIDDLE,POOR
    PEOPLE ACCORDING TO THEIR REQUIREMENT AMEND
    THE LAWS.
    2. GOVERNMENT MUST CONTROLL ALL THE BANKS.
    3. PAY ALL GOVERNMENT PROJECT DUES TO THE
    PARTIES INCLUDING ANNOUCE IN THEPAPER AND NEWS. DUE TO THIS PEOPLE WILL GET BOOST.
    4. STOP THE LONG TERM CREDIT IN ANY SECTOR
    5. REGISTERED ALL COMPANIES,WAREHOUSE, HOUSE
    ANY KIND OF PROPERTY WITH MUNCIPALITY. VIOLATION PUT HEAVY FINE
    6. LET MAKE AGREE MENT FOR 5 YEARS SO PEOPLE CAN MAKE THEIR BUDGET ACCORDING TO THEIR SALARY.

  12. Tony Bury Says:

    Dear Qutubbuddin,
    An interesting set of views. Thank you for your contribution.

  13. Mahboob Says:

    Is property controlling the growth of Dubai now..?
    why should I invest in property..?
    to settle down here… ?
    sure i will then.. ‘couse i love this place..?
    property as investment..?
    really, will anyone recommend it now..?

    its sure that the RENT is the only thing that’s grown above anything else in Dubai.. how long can I hang on here..?

  14. Ann Julie Says:

    Dubai’s unregulated real estate market is crippling under this financial crisis. Government should deal with it cleverly rather than hastily, I mean to say that setting a new 6 month visa is really not going to help the situation at all.

  15. Arcus Properties Says:

    I am totally agree with “Dubai Property” comment. It is now clear that Dubai Real Estate Market has become no further option and interest for all Real Estate investors.

    This situation in Dubai will not remain as permanent. Dubai will recover everything very soon.

  16. Max Donzella Says:

    Hello to All . I am the Director of VIP Business Immigration, the leading firm on Business Immigration services for business people and qualified Managers wanting to Immigrante to Canada under the Immigrant Investor Program ( 10 to 14 months process ). Well I guess that I agree with those previously saying that Dubai will not recover in 2010, we have just seen the News of Technical Bankrupcy of Dubai World. We are receiving huge demand from Dubai from business people looking for a way out of Dubai in a safe , prosperous and a real long term solution for immigration, Well for us its Canada.
    Cheers to all

  17. Business Immigration Says:

    In 2009 , the increase of Investors moving to Canada has been phenomenal from Dubai and South Africa and some increase from the UK . Basically business people and Managers that have accumulated a Net Worth and now wanting to Live in a more stable and developped country. For Brits it’s more about a change of scenery and living in a more open with no social tensions and not credit issues…

  18. Property Resources Says:

    Dubai is the world fastest growing luxurious city with a great tourist attraction in the world. Dubai has now become a global city with high cost of living. The current recession in Dubai is just fro time being. Dubai Real Estate market will recover everything very soon.

  19. Realtors Wichita Falls Says:

    I completely agree with the person above me!

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