Remodeling Dubai: The Emirate's Housing Market
Zembowicz, Filip, Harvard International Review
Often considered an oasis of limitless growth in the United Arab Emirates (UAE), the emirate of Dubai is widely known for its rapid expansion and lavish extravagance, which is nowhere as evident as in its market for housing and hotel development projects. Luxury is a priority, and as contractors struggle to outdo one another, the cost of projects often reaches billions of dollars. This process has led to the construction of the world's tallest building, the Burj Tower, and the world's largest shopping mall, the Dubai Mall, all within the small emirate. But Dubai is not isolated from the rest of the world, especially with regard to financial flows and oil prices, and its economy is undoubtedly susceptible to the worldwide financial crisis. Although uniquely situated among its Arab neighbors due to its increasingly tourism-based and service-based economy, global economic contraction may put cooling pressure on Dubai's housing market, allowing leaders to focus on the long-term implications of its rapid growth.
Though Dubai's current national debt stands at US$80 billion, simple economic analyses suggest that its economy is in a better position than that of many Arab states, especially those more dependent on oil production. As a result of persistent government pressure to reorient the economy to service and tourism, only 3 percent of the emirate's GDP comes from oil revenues, in stark contrast to many of its Gulf state neighbors. With Dubai welcoming around six million visitors per year, the housing and hotel markets have driven the growth of the state. Meanwhile, ample cheap immigrant labor supports construction. Falling oil prices have therefore had only a minimal impact on Dubai, and analysts at EFG-Hermes Holding and the Institute of International Finance suggest that the emirate's budget surplus will exist as long as the price of oil remains above US$36 per barrel for an extended period, a price that is well below current estimates for 2009.
However, Dubai's housing market has already felt the effects of financial problems across the world. Although the emirate's economic indicators remain relatively strong, its housing market is intimately tied to international consumers. As the first Arab country to allow foreigners to purchase land, Dubai has received a large influx of foreigners. Non-nationals, many of whom are fleeing economic stagnation in their home countries, account for approximately four-fifths of the population. Due to an overall decrease in disposable income among both foreign residents and tourists, the amount of money flowing into Dubai from the rest of the world is shrinking. As cash-strapped consumers forgo luxury, housing prices have declined for the first time ever. In the last quarter of 2008, for example, property prices dropped a full 23 percent. These new realities are forcing developers to reconsider projects. For example, several hotels catering to high-end guests, like the Four Seasons and the W, have temporarily put projects in Dubai on hold. Nakheel, the state-controlled development company, also recently froze construction on a skyscraper that would have been twice as tall as the Empire State Building. At Nakheel and many other companies, downsizing staffs has also been a necessity. Because so many construction workers are foreigners, the nation faces a possible mass exodus of laborers. Indeed, the Dubai Ministry of Labor is processing an average of 1,500 visa cancellations each day. …