Last week the inevitable happened, the dream run for Dubai came to a screeching halt. Dubai World a state owned investment vehicle for Dubai announced it needed some breathing room on it’s upcoming debt repayment. It currently has over USD 60 billion in debt, when you compare it to the sub-prime crisis this is nothing. But, what is concerning is that 3 weeks ago the ruler of Dubai, Sheikh Al-Maktoum, said there was nothing to worry and everything was on track.
The personal investment vehicle of Sheikh Al-Maktoum is also rumored to be in trouble, now this should not be surprising. He’s been spending on all types of goodies, such as the 2nd largest yacht in the world. Dubai Holding owns a ton or properties from hotels, real estate and telecom.
The basic theme of Dubai was that it had very little oil and needed to diversify and create businesses that could generate revenue once the oil dried up. And the unwritten rule was that big brother Abu Dhabi would bail it out if anything happened. The Abu Dhabi Investment Authority (ADIA) at one point was worth close to USD 900 billion, so it seemed it had cash if things went south. Well, things are going south and ADIA is not saying much, which is a bad thing.
All of this is not surprising to people that have been following Dubai from a distance. It comes down to the fact that it’s a desert and Dubai Inc. was trying to portray the image of people living in million dollar pads, shopping like a king and making it a mini vegas minus the gambling. I visited Dubai about 10 years back for work and back then the common theme was “make a lot of money in Dubai and hopefully move to a place like the US.” I believe the same thing still holds true, their is no character to Dubai it’s all plastic or in this case sand.
So, who is next? I read an article talking about Bombay being the next city to go belly up. Granted I live in Bombay and a bit biased, but I’m pretty sure there is a hugh difference between Dubai and Bombay. Take housing for example, in Dubai you had lots of supply and very little demand as we are now seeing. In Bombay, you have very little supply and lots of demand so much so that housing prices are up 15% in the past 6 months. Yes, prices are up 15% in this pathetic market. Commercial real estate in Bombay may take a hit, but nothing like what we are seeing in places like Mid-town Manhattan or Dubai.
Or could it be China? One thing I’ve always said about China, it’s a communist country and with that the press is 100% controlled and managed by the central government. We will NEVER know what is truly happening, even their projected GDP numbers are always suspicious.
In the end, I think Dubai did a great marketing pitch for the world but just never could live up to the hype.