Dubai Property: Glut or Shortage?
By Graham Summers
May 23, 2007
Sheikh Mohammed bin Rashid Al Maktoum tends to outdo himself.
Having already arrived at his goals for 2010 in 2007, the ruler of Dubai announced his plans for 2015 in February. Even by Dubai standards, the plans are more than ambitious...
The Sheikh expects Dubai to maintain GDP growth of 11% for the next eight years. The emirate posted GDP growth of 16% in 2005. And lest you think Dubai is another Middle Eastern state profiting from high crude prices, consider that only 3% of the emirate's GDP came from oil.
Currently, Dubai offers 26 million square feet of office space. Drawn by the lack of corporate taxes and a business-friendly atmosphere, international companies have been moving in at a rapid pace.
As you probably know, U.S. oil service giant Halliburton is moving its corporate headquarters here. A Halliburton subsidiary is already stationed on two unmarked floors in a high rise along the Sheikh Zayed Road. Altogether, there are more than 6,000 companies from over 110 countries stationed here. More than 25% of the world's Fortune 500 companies have set up facilities in Dubai.
Dubai plans to double its office space by 2015. It's doing this by building entire cities: Dubai Silicon City, Healthcare City, Business Bay, even a Fashion City: a city filled with nothing but modeling agencies, designer studios, boutiques, even a fashion school.
On the tourism front, Sheikh Mohammed recently unveiled plans for Dubailand, a $20 billion city covering 107 square miles and featuring six theme parks. When finished, it will be twice the size of every Disney resort combined.
The same aggressive growth extends to residential properties. Between 600,000 and 700,000 new units are scheduled to come online by 2015. Dubai's population will need to more than triple to meet this supply.
If all of this screams, "oversupply" to you, you're not alone. Time and time again, I've heard Dubai residents ask aloud, "Where are all these people going to come from?"
The answer: They're already coming from everywhere.
Dubai's population is expected to grow from 1.4 million to 1.8 million by 2010. However, the number could potentially be greater. Dubai is within a four-hour flight of 1.5 billion people. The Emirate is already spending $4 billion expanding Dubai International Airport. It's also building a new airport scheduled to be the largest in the world, with passenger capacity of 120 million: almost 50% more than Atlanta, currently the world's largest.
The new airport will have six parallel runways (in a previous essay I mistakenly put 16), three passenger terminals, 16 cargo terminals, and more than 100,000 parking spaces.
The Sheikh is essentially planning to turn Dubai into a kind of combination of Switzerland and California: a money-friendly, neutral region with huge tourist revenues, over 900 miles of beachfront property, and more clubs than you can possibly imagine.
Yes, it's unbelievable. But betting against the Sheikh has proven wrong so far. I'm not sure I'd start now, either.
It's difficult for Westerners to comprehend the significance of the Maktoum family to Dubai. The closest thing would be if George Washington and his descendants not only owned the United States, but single-handedly took the country's economy from hunting and trapping to its current status, while somehow keeping its crime rate the lowest in the world, imposing no personal income taxes on its citizens, and regularly walking and dining among the people with few or no bodyguards.
The Sheikh owns all of Dubai. No, that is not a typo. He actually owns 100% of the land. True, the property laws have changed so that you can "buy" land here. But in reality, you're just leasing it for 15 or 99 years depending on when you bought. Sometime in the future, you or your offspring will have to buy again.
Dubai's entire economy (as well as the Sheikh's personal fortune and reputation)
is at stake in these developments. I do think there's going to be a correction in property values sometime in the next two to three years – prices have run too high too quickly to be sustainable – but it seems highly probable that Dubai will succeed at most of its ventures.
However, Dubai's property markets have never seen a correction or a cycle of any kind. So if you were thinking of moving here or buying a condo, I'd say wait. Let some of the money that rushed in initially get shaken out and then swoop in to buy when panic hits.
When prices finally drop, a lot of new, unsophisticated owners are going to be looking to sell. And that's when you could land a beautiful villa or condo in one of the world's rising financial capitals at a decent price.
Good investing,
Graham
