Dubai Gets More Dubious
Some of the more apocalyptic websites I follow wrote headlines like Dubai Brings Down the World; Others are a lot more sanguine. David Frum was never too impressed by the tall buildings, writing "Tower boasting especially reminded one of that old Soviet-era joke: "Our Russian computers are the biggest in the world!" When the world's tallest buildings are suddenly showing up in Dubai, Kuala Lampur and Taipei, while Google, Apple and Intel compete to build the world's greenest facilities, that tells you less about the shift of global power and more about Asian countries being fashion laggards."
I am not surprised that the reaction in world markets was so muted; I am not an an economist but I was a real estate developer and have been through a few booms and busts. They have been heading for the exits in Dubai for over a year; In February we wrote about estimates that the population of Dubai will drop by eight percent and property values will drop by sixty percent in our post Dubious Dubai Redefines Long-Term Parking. People have seen this coming and it was already marked to market.
Sandstorm on Sheikh Zayed Road; image via Pradeeps Weblog
I also wrote in my post Bye, Bye, Dubious Dubai:
That title sounds flip and "we told you so" but this is not cheap schadenfreude. The long boom could have built sustainable cities and sustainable jobs; instead we got Donald Trump and Dubai, sometimes together.
Dubai Jumps the Shark
Willem Buiter, Professor of European Political Economy, London School of Economics and Political Science, writes in the Financial Times:
I don't see what the big deal is. Dubai has experienced for most of this decade the craziest construction boom seen in the Middle East since the construction of the Great Pyramids. That boom turned to bust - as booms invariably do. Property developers tend to be highly geared and very procyclical in their revenue flows and access to the capital markets. During construction slumps they drop like flies.
Like every other real estate meltdown, it all resets at a lower price, the investors take their losses, and the "gormless rock stars and European football geniuses," as Buiter calls them, are replaced by those who pick up the bargains. It was ever thus. Unfortunately this stuff doesn't melt back into sand so that they can do it right the next time.
Read also Andrew Leonard, Is the Dubai World debacle the new Lehman?