While shepherds build their lofts by night

In a surprise move Sheikh Mohammed announced a renaming of the tower. It will now be known as the Burj Khalifa, after the president of the United Arab Emirates and emir of Abu Dhabi, Sheikh Khalifa bin Zayed Al Nahayan. Whether this move is a truly charitable and gracious act in honour of a neighbouring ruler, or whether Abu Dhabi in fact demanded this ultimate price in return for last month’s timely bailout of $10billion I guess we will never know. But if it is the latter then Dubai would have been in no place to argue. But what a price to pay!

Up to now the true height of the tower was kept secret – not that anyone in the world is in any rush right now to out-build them – and not that any reasonably skilled surveyor with good trigonometry skills couldn’t calculate it without too much bother. Unofficially the figure of 818 metres was being mentioned across the web. Today however the actual height has been released at 828m (2,716ft) which makes it 320m higher than its nearest rival, the Taipei 101.

So for those who have missed the stats….where have you been!! But seriously though here they are:

This truly is a monument to the ingenuity and optimism of human beings, though undoubtedly it also epitomizes the folly of extreme human pride and ego. Personally I think its pretty cool and who knows, if I had that much money perhaps I’d have wanted to build one too. Congrats to you Sheikh Mohammed on the achievement. A pity you had to give away the name.

Of course we can’t condone the use of virtual slave labour to get the job done – but hey aren’t all truly great monuments built on the back of slaves?! The Pyramids, the Taj Mahal, and now the Burj Khalifa.

Does this new kid on the block (or should that be new Block on the Block) herald a turn around in the fortunes of Dubai? Well after the 50% price dive of 2009 the omens remain poor for the time being. Remember that 90% of the population are expats and half of the whole work force is real-estate and construction based (according to Mr Saud Masud, an analyst at UBS Dubai.)

As outflows of these expats continue, he estimates a drop of 10% in Dubai’s population over the 2 years from start 2009 to end 2010. This will decrease the demand for housing, while over the same period new handovers of approx 40,000 new units will accentuate the over supply problem. The excess supply of housing could hit 30% by the end of 2010.

This does not bode well in the near term for any recovery in property values, although long term Dubai will no doubt survive as an important business hub in the Middle East, albeit one that’s had its wings clipped and some lessons in humility doled out by the spadeful.

On another note we came across an interesting subject about the Islamic view about building extravagantly on this website: http://islamqa.com/en/ref/101903

The author says:

“The Muslim should not make this world his main concern, and poverty is not what the Prophet (peace and blessings of Allah be upon him) feared for his followers, rather he feared that the world would open up to them and they would compete in worldly gain, for that could lead to their doom and destruction.”

It was narrated that ‘Amr ibn ‘Awf (may Allah be pleased with him) said: The Prophet (peace and blessings of Allah be upon him) said: “By Allah, it is not poverty that I fear for you, rather what I fear for you is that worldly riches may be given to you as they were given to those who came before you, and you will compete for them with one another as they competed with one another, and you will be destroyed as they were destroyed.”
Narrated by al-Bukhaari (2988) and Muslim (2961).

He goes on to say:

“We know that there is no reward in building a house per se, otherwise the rich who build palaces for millions would occupy the highest degrees of Paradise! The dinar that a Muslim spends on building his house will not be reciprocated in the Hereafter. A man may be free of sin, and if he is rewarded it will be only for his intention in protecting his family and household from indignity, and sheltering them in a house that protects their dignity and honour. But there is no reward merely for building a house, and he may be exposed to sin and punishment if he is extravagant and his aim is to show off and boast.”

The author also quotes the following from the sayings of The Prophet (peace and blessings of Allah be upon him):

It is proven in Saheeh Muslim in the hadeeth of ‘Umar ibn al-Khattaab (may Allaah have mercy on him) that when Angel Jibreel (Gabriel) asked the Prophet (peace and blessings of Allah be upon him) about the signs of the Day of Judgment approaching he said : “When you see the barefoot, naked, destitute shepherds competing in the construction of lofty buildings.” Ibn Rajab said, commenting on this hadeeth: What is meant is that the lowest of the people will become their leaders, and their wealth will increase, until they compete in building tall buildings, and adorning them. Al-Nawawi mentioned the same meaning in Sharh Saheeh Muslim, where he discussed this hadeeth.

“Encouraging signs for Dubai’s property sector” – Bradley Hope (The National)

“Cash boost for property firms” – Angela Giuffrida (The National)

“Dubai’s real estate industry ‘at low point’ “ – AME Info quoting interview with Ryan Mahoney

Exactly what planet are these people on?

Perhaps they need to build themselves one of those man-made off shore islands, call it ‘Mars’ and all relocate their offices to it.

All of the above reckon that the Dubai housing market is at, or is close to, it’s low point and that most likely the down trend will be reversing soon! When reading this stuff I wasn’t sure whether to laugh or cry! As proof they point to the recent $10bn bailout of Dubai by the UAE federal government (read as ‘Abu Dhabi’), much of which will most likely go to the govt backed construction companies that are finding it difficult to meet their debt obligations.

Just imagine a black hole which has opened up below Dubai. What the UAE is now proposing is to throw $10bn into that hole. They may as well say bye-bye and so-long to that cash, because its gonna vanish into that black hole. It will neither be seen ever again, nor will it make a blind bit of difference to the outcome for these companies. If I were them I’d take the money and get out of the property game and go dig some exploratory oil wells instead – far more likely to stay afloat that way!

On 16th Feb 09 Property Wire reported that “…there are almost no visitors” to the International Property Show that opened in Dubai on the preceding day. Conversely, Sheikh Mohammed bin Khalifa Al Maktoum, who is Chairman of the Dubai Land Department and was inaugurating the Property Show, was talking up the prospects for the year ahead. Sheikh Mohammed said, “Dubai will be the fastest city to recover from the impact of the ongoing credit crunch, and the emirate’s real estate sector will once again witness a period of long term boom. The impressive participation of players at the ‘International Property Show – Dubai 2009′ underlines the high confidence in the UAE’s property sector.”

I for one would not blame the leader for trying to inject some much needed confidence into the spooked market at this time. However as a basis for deciding what will actually happen in the Dubai Property market, it would be difficult to justify.

Predicting the Bottom

The AME Info article mentioned in the list above quotes a guy called Ryan Mahoney from Better Homes, Dubai’s largest estate agency (for how much longer – who knows?) Mahoney told AME Info that, “sale prices in many of the city’s developments and communities were already approaching the lowest that they could conceivably fall to.” Now that’s the part where I was rolling about laughing. He’s hoping!

Trend-reversal predictions are virtually always wrong. In any case, the reversal points can only be seen after they have happened, usually many months afterwards in the case of property. The property market like all major markets is not only governed by supply and demand as these touts would have you believe. They say that now that not so many properties will be hitting the market and now that the existing stock has plummeted by 40%, or whatever the latest figure is, it means that the buyers will be back. Yet that’s not nearly the whole story.

The most likely scenario, based upon how these markets tend to play out historically speaking, is that it is far too early yet for buyers to return in meaningful numbers to the Dubai property market. People still remember the high prices of last year which were largely driven by speculators. Now that they have fallen by this arbitrary 40%, 50% or whatever, yes there will be some buyers who will fall for the memory trap of judging value based on where prices have just fallen from.

This will include buyers who may still have some cash lying about and will not need major financing. When these ‘reminiscing’ investors, anticipating a possible snap-back to the glory days show up, prices may stabilise for a while and maybe even recover a tiny bit. Thus we may at some point get a ‘bear market rally’, also known as ‘dead-cat bounce’. This is a colorful term that likens falling markets to a cat thrown from a tall building. On hitting the ground the cat, though dead at that point, will still bounce once before returning to the ground!

Unfortunately any such temporary recovery will be on very thin volume. Moreover it will prove a final chance for those sellers who had lost all hope, to sell into the rally and offload, whether at the price they bought or even at a loss. Sellers will outnumber buyers once more and the market will again descend towards its true bottom as those who ride upon the Dubai property ship will abandon all hope after finally erasing from their minds and hearts the distant pleasant memory of the 2008 high point.

Only Time will heal Fear

Even when banks eventually start lending again, the collective fear of investors and speculators will take a long time to be erased. These herds will remain scared witless of ever putting their money into foreign markets again. This fear is unlikely to dissipate in just a few months. Rather we are more likely to be looking at some years down the line.

Furthermore there is not even any guarantee that when global credit starts flowing again, whether the new money will even go into property again in a big way for decades. Often when one bubble pops, then the next one which follows it is in a different market altogether. Those of you who remember the Dotcom bubble of 2000 will recall that after that mania exploded it never returned. The new bubble after that was property. Now that this one has popped, who knows what the next one will be. Perhaps Art, or Gold? Some more likely candidates are New Energy Technology Companies, Stem Cell Pioneers and Nanotechnology Enterprises.

Just Stop Building!

My message to the leaders and visionaries of the Dubai experiment:

By all means try to put the brake on the property slide, however know this – your success will be limited, so don’t waste too many resources on it. Instead why not diversify into new areas and technologies. Allow Dubai to mature and evolve and not remain real-estate based. Don’t try to re-inflate a bursting bubble – wake up and smell the sheesha – there’s going to be more holes in it about to pop!

In fact, why not just stop building altogether?? Simply finish off the projects which are almost done, refund everyone else’s money for promised projects and then….STOP! Dubai has more than enough accommodation for now. Do you need to add more? By limiting supply going forward it will become a finite resource, like Monaco, and this will eventually stir competition amongst buyers to pick up a place while they are still available. Then get your Nakheels and your Emaars and turn them into something totally different, as mentioned above. Perhaps create niche disciplines in the fields of Solar power, Genetic engineering and Space science? Add some substance to Dubai rather than just glitz and glamour.

Come on guys – get your thinking caps on – there’s more in the World than just the tallest Skyscraper!

I welcome comments on this blog article – what do readers consider could be the next big thing which Dubai could excel in?

It relates to an issue that has concerned us in the past when considering investing in Dubai beachfront property, in particular the reclaimed islands such the the Palms and the World.

Having been literally raised from the sea so recently and with nothing similar nearby of any history or track record to compare against, that primitive part of our mind, the place where ‘gut instinct’ resides (the amygdala) has always nagged away at us about the question of whether such reclaimed islands could just as easily go back to where they came from, whether through erosion over time, or by a one-off event such as a tsunami.

Could a tsunami affect Dubai?

The answer to this question is ‘probably not’. A Tsunami Seminar held in Tehran in September 2006 assessed the risks to the Gulf area of future seismic events, in the wake of the Indian Ocean tsunami disaster of 2004. Representatives from various high ranking Meteorological, Oceanographic and Seismology organisations were at the event as well as various professors. A full report from the Iran Daily newspaper can be read here.

Map of The Persian Gulf

For the Sea of Oman/ Arabian Sea region overall, there is actually an identifiable tsunami risk. This is attributable to the Makran Subduction Zone that runs along the coast in Southern Pakistan and into Iran. A seismic event in this zone could generate destructive tsunamis in the Sea of Oman, south of Iran. Should a tsunami occur in the region, tidal waves could reach Iranian and Pakistani coasts in between 15 and 30 minutes and could inflict irreparable damage on coastal regions. The last time such an event occurred in this area was in November 1945 when the Balochistan Earthquake, measuring 7.8 on the Richter scale triggered a huge tsunami that hit the whole Makran coast, reaching heights of up to 40m and killing 4000 people in Pakistan.

As for Dubai and the Emirates, it would seem that they may, fortunately for investors in the Palm, be at very low risk from tsunami events due to the shallowness of the waters in the Persian Gulf. The average depth of waters in the Gulf is a mere 50m, with a maximum depth around 90m. That’s shallow enough to flatten any tsunami trying to push its way through the Strait of Hormuz.

OSAC assessment of earthquake risk

On the topic of earthquake and tsunami risk in the UAE, The American “Overseas Security Advisory Council” (OSAC) which provides information to organisations operating in various regions worldwide has this to say:

“In response to the recent tremors, seismic experts have provided the following information:

- Parts of the UAE have the potential for a substantial earthquake. This potential is greatest for regions near the Oman Mountains.

- In much of the UAE, the weakly consolidated materials on which buildings are constructed would tend to amplify ground-motions (i.e., liquefaction), thus increasing the likelihood of damage to buildings.

- Because the recurrence interval of earthquakes is not known, a useful assessment of seismic risk in the UAE probably cannot be made at this time. It is probably reasonable to conclude that seismic risk in the UAE is less than that in western California, but it also is reasonable to conclude that it is not zero.

- One should also consider the tsunami risk to the eastern coast of the UAE, as a large displacement along the Makran Fault (fault offshore of Iran and in the Gulf of Oman), could produce a tsunami.”

The full report can be read here.

Earthquake Risk lower than London?

On the flip side to the OSAC assessment, the UAE Interact website reported in April 2007 the following:

“The seismic risk in Dubai is lower than that of London and it is not dangerous as has been reported in some risk assessment reports, said an expert. “There is also no possibility of a tsunami in this region because Arabian Gulf waters are not deep enough to trigger a tsunami,” said Angus McFarlane, Technical Director of Building Structures at Hyder Consulting Middle East.

Speaking at a seminar on ‘Seismic Hazards in the Gulf’, he said the seismic risk assessment indicates that the seismic hazard in the UAE, Qatar, and Bahrain is significantly low. ”

The full article can be read here.

Beach Erosion and Sea Levels

The visionary World Islands

“…the hundreds of thousands of new islanders will be living just 10 feet above the waterline. Last month, giant waves swept away five workers on the Palm Jebel Ali, one of whom drowned.”

In the same article Frederic Launay, director of World Wide Fund for Nature in Abu Dhabi, said, “If you build on a low coast like that you’re exposing yourself to dramatic consequences, a high wave or high sea, or even if the sea rises.”

As for the problem of beach coast erosion, this is a long-term problem that predates the man-made island projects themselves. According to a Gulf News report dated Dec 7, 2007, available here the coast erodes at a rate of 50m every 2 years! This is from a hoard of data collected by engineers from the Coastal Management Section at Dubai Municipality since 2000.

Without five-tonne bags of sand strategically positioned 100 metres from the shore to form protective groynes the recently nourished Umm Suqeim I beach would wash away, potentially taking houses along with it.

To combat coastal erosion caused by the impact of the sea, 500,000 cubic metres of sand had been poured along the shore to pad out the receding coastline during 2004, said Alya Abdulrahim Abdullah, head of the coastal management section at Dubai Municipality (DM).

The area under her authority stretches between the Sharjah and Abu Dhabi border, almost 70 kilometres, 10 nautical miles offshore and 1 kilometre inland. This area is defined as Dubai Coastal Zone.

The new man-made islands for their part had contributed to an increased rate of erosion as they had altered the wave patterns hitting the natural beaches. However since the erosion issue is a known one it is something that the Coastal Management Dept will be keeping one step ahead of, with initiatives such as sand replenishment, wave-breaks, and policies for construction companies whereby they must dump any excavated sand of beach quality at specified sites on the coast to help in replenishment.

Man-made, Man-maintained, Man-dependent

Without question, the Dubai palms and the World archipelago are amongst the most beautiful and audacious creations of man in modern history. They are of course a modern day miracle. Yet they are subject to the same old forces of nature, forces that prefer to pull down organised structures into disorganisation, to turn order into chaos.

The Dubai coastline and these islands will always remain a dynamic battle between Man and Nature. The gradual erosion effect of the tides will need a sustained replenishment effort over the years. However if anything more dramatic were to occur, such as global warming causing sea levels to rise, or a tsunami-type event (though unlikely) then the best efforts of Man may not be enough.

That used to be the oasis where Dad proposed to Mom

Unfortunately Dubai is no laughing matter now, especially not for the property investors from all over the world who now stand to lose a great deal. A friend currently working in Dubai sent his woes in an email. This one line sums it up “sh*t has started to hit the fan over here in Dubai”.

Several major Dubai property developers have begun laying off staff, and others are reviewing their recruiting needs as the available global finance becomes thin. Although hard statistics are difficult to come by for the region, a case in point is Emaar who is considering job cuts in the wake of the tumbling market. To keep you in perspective Emaar is the Gulf region’s largest property developer by market value, 32% owned by the Dubai government and is the developer behind the world’s tallest tower, the Burj Dubai.

Emaar shares were down nearly 80% in 2008 to 3.19 AED a share. Realtors are identifying worrying trends of rapidly declining house prices, a stagnant resale market, the inability of off-plan property investors to keep up with their payment schedules, a marked decline in hotel occupancy rates and wage and hiring freezes in property companies. To make matters worse, they have highlighted the government’s indebtedness [Yes Dubai is not as rich as you thought - it's Abu Dhabi which still has oil]. Dubai has borrowed heavily in recent years to finance all of the physical infrastructure needed to support its construction trend. So much is the fear of a Dubai Doom that the UAE President, His Highness Shaikh Khalifa Bin Zayed Al Nahyan had to reassure the people of the UAE that their economy is supported by a healthy and robust national banking system [do you believe in a healthy bank these days?! Lol and chuckle]. A royal effort indeed to save the Dubai Dream.

Still phenomenal projects are being announced in the Dubai heartland similar to existing ones such as Burj Al Arab and the Indoor Skiing Resort in the Emirates Shopping Mall, but I don’t see anyone buying these new projects. Local Urdu and Hindi channels in the UK are saturated with Dubai Exhibitions and to be honest they sound somewhat desperate. I know someone who bought property two years back in Dubailand and though on paper the value has gone up he has no buyers interested in taking it off his hands. There is virtually no resale market at all for these new apartments. Once you buy one, you are stuck with it.

The new Atlantis - perhaps an apt name?

[this article originally published on our sister site www.ultranomics.com by jq]

Desperate Project Manager decides to cut out the recruitment agencies and advertise direct

How is this for a novel approach to finding a new job? Get your black marker pen out and advertise yourself on the back of your £40,000 (AED 200,000) Porsche!

The BBC today reports that this is exactly the approach that one UK national, who has just been made redundant from his construction manager’s job in Dubai, has decided to do.

The 28 year old, Andrew Blair, from Bristol in South West England, explained his surprise at the sudden turnaround in fortunes which many Dubai based companies, especially those in the construction industry, are facing.

“Initially we were in a bubble here in Dubai, thinking we were immune from the credit crunch and really being arrogant about it,” said Mr Blair who moved from the Clifton area of Bristol to Dubai two years ago.

Now he is resigned to the fact that “At end of day if I don’t have a job I can’t afford the car, simple as that,”

Mr Blair, no relation to the ex-prime minister Tony Blair, shrugged his shoulders and accepted that “It’s desperate times so sometimes it takes a new approach.”

Mr Blair went on to say that if the plan didn’t work a re-spray of the car would cost around £500.

Developer woes

Mr Blair is yet another casualty, albeit one who still owns a Porsche, of the Construction industry’s woes in Dubai. Despite being home to the most ambitious building projects on the planet, including the world’s tallest tower and the world’s biggest shopping mall, as well as the surreal offshore Palms and World islands, its real estate economy is now seriously starting to unravel.

Its over dependence on tourism and real estate, with no major oil reserves to back it up (unlike its oil-rich neighbour Abu Dhabi) has left it exposed to the global credit downturn.

Last week, property development giant Nakheel disclosed that it is delaying construction of its new record-breaking tower project that was designed to rise more than a kilometre high into the sky.

“Developers have got serious cash flow problems,” says Colin Foreman from Middle East Economic Digest.

“Their revenue was coming from selling properties which hadn’t been built yet and they were supplementing this with financing. ”

“Banks aren’t interested in lending them money and nobody is interested in buying property, so their two avenues for finance have gone.”

“At the same time they have got huge outgoings because they are building projects that they no longer have money to pay for.”

Is it all down from here for expats invested in Dubai?

The trouble is that expats, like Mr Blair, make up four-fifths of Dubai’s population. If they start going home, demand for property will slump even further.

A further concern is that with falling incomes and credit, and now sterling hitting a record low, the tourism market is also being hit. Western tourists are cutting back on spending, and occupancy rates at many of Dubai’s luxury hotels are down.

Loss of Confidence

It is quite amazing just how many companies around the world and countries in the region have bought into Dubai’s success, bearing in mind it has come all this way in just the last 20 years or so.

It truly is the financial, retail and tourism hub of the Gulf region. So how much will this developing shake (sheikh) down damage the Golden Emirate’s attractiveness and future prospects?

According to Khalfan Saeed Al Kaabi, who runs a handful of construction related companies based in Abu Dhabi it will cause a palpable loss of credibility. “Looking at the long term, Dubai has built itself on the promise of tomorrow and people have been buying into the dream it will deliver,” says Mr Al Kaabi.

“It now says it will not be able to deliver these dreams, so as an investor that credibility has gone.”

“Dubai needs to do a lot of work to restore that credibility over the next two years.”