But according to a recent study published by Morgan Stanley, property prices could fall by 10 percent in Dubai by 2010. What could have happened in this country, which has shifted its focus away from oil revenues, and more toward property developments and tourism? (See NAPI Real Estate, issue 3)
Speculators burned
The simplest explanation is probably that the room for rising demand is not infinite even in the Emirates - which can shock companies used to easy profits. Meanwhile, simultaneously to the publication of the report, a significant amount of speculative or "hot" money has exited Dubai as well, writes The Economist. This was because some investors had betted on the United Arab Emirates de-pegging its currency from the dollar in order to combat its double-digit inflation rate, and had hoped to profit from such a move. However, when they realised that this wasn't going to happen, they withdrew their money - as a result of which, there is currently significantly less money to be spent going around in the country's economy.
Ambitions still high
According to the British magazine's report, Dubai developers tried to reassure everybody at the recent Cityscape real estate conference that everything was in perfect order. State-backed development firm Nakheel announced the building of another skyscraper, which would yet again set a new height record (the current record-holder is also in Dubai), and another local company has also announced developments worth 100 billion dollars. The mood is much less optimistic however on the market - shares of a well-known developer, Emaar, for example, have fallen to one-third of their previous value. Another telling sign is that Dubai authorities have merged two significant mortgage lenders, Amlak Finance and Tamweel, the latter of which is also caught up in the midst of a corruption probe reaching into the upper echelons of political life.
Era of easy profit could come to an end
A collapse is not be feared in Dubai. The biggest developers are state-owned, and the state is able to control supply and demand by determining when and how much land to put on the market. Money will continue to flow into the Gulf country, but even so, further mergers, the collapse of smaller property developers, and the decline in the usual huge profits are a realistic scenario in the future of Dubai. In addition, it is possible that Dubai's ruler, Sheik Mohammed, will have to bow before the Emirates' other leader, Sheik Khalifa bin Zayed al-Nahyan of Abu Dhabi. Abu Dhabi controls the majority of oil reserves, and therefore that is where most of the money is. As opposed to the current, quite opaque, financial agreements between the two emirates, a new kind of cooperation could be negotiated, in which Abu Dhabi would all but certainly gain a leading role.
