Critical thinking and Dubai

It's been quite awhile since I last posted, and I've missed writing... So here I go:

In the past few months, the local news papers have been full of articles on improving economic conditions locally, a double-edged sword in my opinion.

The articles I chose to focus on where on new property launches from Emaar, the omnipresent developer, and a new bond issued by the government of Dubai.

Emaar's new project, a multi-use residential development named Mira, comes on the back of similar launches by government of Dubai linked entities. The project is just the first phase of many, in what i see as a concerted push for the real estate market's diversity. The list of new developments are in nearly every area of Dubai, from the historic creek area, to the deserts beyond Barsha.

Naturally with mega-projects the scale of Mira, with an estimated 25,000 units being introduced over the projects lifespan, the marketing campaigns are equally gigantic, sometimes with disastrous results. A quick search on YouTube on the Mira launch will show multiple camera angles of a fistfight happening at the launch. The hype generated from Mira, and these other projects is something that isn't to balked at, but embraced.

Real estate prices have steadily shot up in the past 8 months, which is a good sign for these developers... Right?

The sins of 2008-2009 are too easily forgotten, when Dubai had a massive real estate rally, and an equally massive crash. But to say that we have ignored this, would probably be a lie.

Debt is what caused the crash, and despite the best projections, it is debt that can wipe it all away.

There is nothing wrong with building new projects, as long as your underlying demand remains robust enough to do so. The troubles in the surrounding Arab states have proved to be a boon for the developers as money started flowing into the country. A casual stroll around the Dubai mall is now an exercise in picking out the different dialects of the GCC, and the mall has flourished with its new visitors.

Up to now, All is well, but I think of how transparency on debt could be our undoing. Despite assurances by various developers that prudence and cash reserves are in high supply, and that debt financing is only at 50%, I for one, can't figure out how much these projects will rely on banks. Nor will I ever.

It only takes one wrong turn in the market's direction for banks to come calling, and I hope it doesn't come to that.