Interesting report from Seeking Alpha. Sounds quite rational to me. Short version is Dubai property went bubble crack pop. In the meantime if Dubai doesn't go bankrupt, then all the reasons that made Dubai what it was before the property boom are still there, and will continue to drive growth, and a property market revival ... eventually. Some excerpts ...
Seeking Alpha 18 November 2009:
Toward Economic Recovery in Dubai
By Andrew Butter
On the sidelines of the big news there are two stories making the rounds: Dubai property and Dubai debt.
In the grand scheme of things, Dubai is a pretty small place (the economy is about 45% the size of Singapore's), but it’s interesting from the perspective of bubbles.
Now that the initial chaos of the bubble bursting has worn off, it’s possible (perhaps) to plot what might happen next.
...
So the buyers only saw the rents on the (new) stuff on offer, and they thought, “OK, I’ll buy at a 7% gross yield or so, and that’s not counting for the “fact” that in Dubai house prices will go on going up forever.” Whoopee!
But that price wasn’t a true reflection of market reality, and as soon as new units started coming on line (plus the economic slowdown), reality was restored. Yields didn’t change, but rents went down.
...
There have been no defaults so far and Dubai has a long tradition of paying its debts, most of the development over the past thirty years was paid for with debt.
Of course, there’s always a first time.
...
Some estimates put the collateral backing up the $80 billion to $160 billion of debt, at $1.3 trillion, although there are no details on how that was calculated.
...
Dubai is either an economic anomaly or a free-marketer’s fantasy land, depending on your perspective.
Twenty years ago the economy was 15% the size of Singapore; in 2008 it was 45% ($US 80 billion). And Singapore is no slouch when it comes to economic growth. Dubai’s nominal GDP growth averaged 15% since 1988, and that growth was not driven (directly) by oil.
...
Whatever happens, the core business model of Dubai is driven mainly by foreigners providing local and international goods and services, and it’s likely that will carry on.
That’s what made Dubai work in the first place; and without that Dubai will have not very much but a load of empty real estate; Dubai came to be what it is by being an open place and safe place with good infrastructure and transportation, to do business; that’s where the money and the demand for real estate comes from.
So regardless of what happens to the debt that is not explicitly or implicitly guaranteed by the sovereign state of Dubai, or whatever steps the bond-holders take to liquidate whatever assets they collateralized that debt with, (in the event that it defaults); it’s likely that the essential and very efficient infrastructure of Dubai will keep running, and will be kept running.
In which case there will still be demand for real estate.
http://www.seekingalpha.com/article/174158-toward-economic-recovery-in-dubai _________________ UAE IPO list | posting guidelines
I think i'm going to file this one in my new folder titled "HH tells people to shut up file".
There have been so many reports on Dubai, both before, during, and i have no doubt after the collapse, but the fundamentals are still clearly there.
Ok, gone of the days of a quick fast buck on the property, but Dubai will continue to grow and build on the vision of a central trade hub.
The globe needs it. Where best than UAE for "East meets West".
...and people need houses...
...a realistic view i think is to look at the growth of Dubai over the last 10 years both on quantities and value, plot it on mental graph, and then apply a "Fibo 50%" retracement...and thats where we are.
...ok, now take the same mental graph and look at world population expected growth, and project that back onto the graph.
...what you then have is a "5-10 year look ahead, that will take us beyond where we are now.".
The world population is growing, thats a fact, no one can dispute.
What Dubai has done is very simple, it has "run before it can walk", so what, in 5+ years time, there will be diggers back on the palm jebel ali, a bigger ski slope, more coffee shops, and talk of a link between the metro and the new line to Abu Dhabi...!
I think for Dubai in general its "Short/Medium Term - Bearish ... Long Term - Bullish" ... !
In the meantime if Dubai doesn't go bankrupt, then all the reasons that made Dubai what it was before the property boom are still there, and will continue to drive growth, and a property market revival ...
Great Point Sharewadi
Being a part of the multinational business community in Dubai, I can't see any other alternative for a HQ location in the whole region (within 2000 miles)
Once the business picks up the other Oil-Rich GCC neighbors, these multi-nationals will add more employees in Dubai and more business activities (meetings, conferences, exhibition, holidays,...)
As such Oil price is of utmost importance although Dubai is now a net importer of energy !
The BIG question is "if Dubai doesn't go bankrupt" ?
It seems that Abu Dhabi support is very strong to support Dubai rescheduling the loans... But even if the loans are taken care of, it may be still difficult to run this growing government budget without tax...
Did you read the news about Qatar corp tax ?
Last edited by sam111sam on Fri 20 Nov 2009 10:35; edited 1 time in total
The BIG question is "if Dubai doesn't go bankrupt" ?
Yes, and as soon as I posted that I thought I should have added "and it won't." . One way or another Dubai will repay the maturing bonds. The question is not if, it's at what price.
Off the top of my head, 3 large Dubai government loans have been repaid in the past 12 months, even though the option for rollover was there. DEWA, Dubai Holding, and a Dubai Holding subsidiary I think. That's a pretty strong statement in my opinion.
sam111sam wrote:
Did you read the news about Qatar corp tax ?
Yes, but I don't get the connection ... Unless Dubai is thinking about introducing income tax to repay debts? I thought Sheikh M said some time ago there would be no income tax - maybe he was referring to personal income tax. _________________ UAE IPO list | posting guidelines
Qatar with its huge income from gas, felt the need for tax a source of revenue to support expansion plans... Makes me think: what about Dubai ?
Qatar plans no personal income tax, only corp tax. For a long time, Saudi impose a sort of corp tax also (2.5% of corp revenue "Zakat").
In the past 5 year Dubai Gov budget doubled. I would imagine that good part of the funding came from land sales, and some part came from debt. these two sources are not available anymore.
Corp Tax, additional government services fees might be on the cards
It will be more interesting to see if there is follow through on the ICD decisions. This is major bottom making news here. Dubai can begin looking up now.
Posted on Sun 22 Nov 2009 16:54 by shareef.abdulka
sharewadi wrote:
Yes, but I don't get the connection
Correct me, sharewadi, if I am wrong, but I am made to understand that Qatar did not introduce new extra or additional corporate tax. Rather, she seeks to probably increase revenue by widening the net horizontally for all foreign owned companies, by reducing the current vertical status of 30+% to a mere 10% flat rate to all wholly or partially foreign owned companies. As far as personal income tax is concerned there will continue to be a zero taxation. Whether this is achievable or not is a different matter and I am not an expert on this; but would appreciate contribution from those who are familiar with Qatar.
If that is correct, then probably here is is where Sam111 is, understandably, trying to make the connection. _________________ Honesty is the best weapon and playing fool is the best policy!
the trend is going now back to old school trading in dubai, dubai rulers dont want anymore mammut projects and show off projects, they want to concentrate now to become a trading hub thats it.
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. One way or another Dubai will repay the maturing bonds. The question is not 
... Unless Dubai is thinking about introducing income tax to repay debts? I thought Sheikh M said some time ago there would be no income tax - maybe he was referring to personal income tax.