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.

In the worst case scenario for the coming year, UAE Investment bank Shuaa Capital reckons that real estate is heading for up to 60% falls by the end of 2009, after which they should begin to stabilise at the new lower level. The bank reports that property in some parts of Dubai has already plummeted by 40%. It says rents could fall by 20% up till 2011.

hundreds of work permits being cancelled daily

With companies actively shedding jobs and anecdotal evidence suggesting 1500 work permits and visas being cancelled daily, the Dubai population is set for a 5% shrink in 2009 according to Shuaa, meaning demand for both rental and owner-occupied property is headed decidedly in one direction. Add to that the spectre of home buyer residence visas being cancelled and the supply of mortgage funding drying up and you can see their point!

Swiss Bank UBS thinks a 8% contraction in the population is likely to be nearer the mark, blaming the downturn in the construction and real estate sectors. Hardly a revelation.

The Q4 2008 House Price Index (HPI) released by Colliers International last week (which is culled from actual mortgages completed by members HSBC, Barclays, Amlak, Dubai Islamic Bank, Emirates NBD and Abu Dhabi Commercial Bank) showed that Dubai property prices on average fell 8% in that period. This was on the back of a 45% drop in transaction volume in Q4. Prices of Apartments fared worst, notching up an 11% fall. Townhouses and Villas recorded 1% and 3% falls respectively. Despite this drop however, anyone who bought a year previously in Q4 2007 is still looking on average at a 59% capital appreciation.

The conclusion? Well you don’t need a degree in finance, or a highly paid job in an investment bank to know that the boom era of Dubai is well and truly stalled. How big or protracted the correction will be, no one really knows, neither Shuaa, nor UBS, nor HSBC or the others. No amount of analysis in the world can predict to a percentage or to a time as these banks profess to do. In the end the factors are too complex and changeable.

In the end each individual must guess for themselves when it is the right time to get back into Dubai property. Treat all news, analysis and forecasts with a discerning and critical eye. Never be a slave to them as they invariably trail behind the market trend rather than predict it in advance.

If you are in the ‘Dubai is a long term play’ camp then you trust that the rulers of the emirate are hardly likely to allow their grand experiment to fail and with the status of Dubai as the major business and tourism hub of the Middle East, it will be worth your while to stay in the game if you can manage to secure funding.

On the other hand if you feel the omens (and your gut instinct) are telling you to keep away then do not let the spurious ramblings of young investment banking analysts sway you. History shows they are usually wrong. With often conflicting analyses, some of them by definition will be wrong in any case.

All we do know is that the current climate of constrained money supply is the key factor in this global downturn. Despite the greatest desires of the Dubai authorities, Dubai will not be immune to these factors since they affect the core drivers of the property market, namely the individuals who need mortgages to purchase, and the companies who need finance to thrive and recruit in the area.