Dubai collapse - revisited

While as I wrote a couple of weeks ago, almost all of Dubai's construction remains stopped, Dubai has made some progress at tackling its massive debtload.

Yesterday, Abu Dhabi announced it would provide $10 billion to its sister emirate to help it make some of the $15 billion in interest and principal payments that comes due for Dubai in 2009. Neither side has announced what if anything Dubai has offered Abu Dhabi in exchange for this, but at the very least, Dubai will have to tame some of the social liberties and urban excesses that have emerged over the past few years.

While this bond offering will help provide some short term cash and reduces the chance of a bankruptcy, Dubai is by no means in the clear. The cost of insuring Dubai's debt has surged over the past few weeks, and most estimates I have seen showed the cost of insuring Dubai's debt to have reached nearly 10% over the weekend. That was the world's highest rate.

The stock market, which declined 72% in 2008, rallied nearly 8% today. The cost of debt insurance declined to ~7.5% today on the news.

We'll see what happens next...

Dubai collapse

Not entirely surprising but Dubai has collapsed and spiraled out of control.

Friends who have recently visited told me that the cranes which dotted the tops of nearly every building a year ago still are there, but all of them are stopped. Overpasses and infrastructure development have been halted in process with partially complete projects everywhere.

Finally, since in the UAE, people who are unable to pay their bills can go to Debtor's Prison, expat's whose real estate holdings have plummeted in value are abandoning their cars at the airport and fleeing the country.

This depressing story below is from the Times in London.

"For many expatriate workers in Dubai it was the ultimate symbol of their tax-free wealth: a luxurious car that few could have afforded on the money they earned at home.

Now, faced with crippling debts as a result of their high living and Dubai’s fading fortunes, many expatriates are abandoning their cars at the airport and fleeing home rather than risk jail for defaulting on loans.

Police have found more than 3,000 cars outside Dubai’s international airport in recent months. Most of the cars – four-wheel drives, saloons and “a few” Mercedes – had keys left in the ignition.

Some had used-to-the-limit credit cards in the glove box. Others had notes of apology attached t

“Every day we find more and more cars,” said one senior airport security official, who did not want to be named. “Christmas was the worst – we found more than two dozen on a single day.”

When the market collapsed and the emirate’s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit.

“There were a lot of people living the high life, investing in real estate and a lifestyle they couldn’t afford,” one senior banker said.

Under Sharia, which prevails in Dubai, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips.

The abandoned cars underscore a worrying trend. Five years ago the Emir, Sheikh Mohammed bin Rashid Al Maktoum, embarked on an ambitious plan to transform Dubai into a hub for business and tourism. A building boom fuelled double-digit growth, with thousands of Westerners arriving every day, eager to cash in on the emirate’s promise of easy living and wealth.

Many Westerners invested in Dubai’s skyrocketing real estate market, buying and reselling homes before building was even complete. But, as the recession took effect, property and financial companies made thousands of workers redundant and banks tightened lending. Construction companies have delayed or cancelled projects and tourism is slowing.

There are increasing signs that the foreigners who once flocked to Dubai are leaving. “There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.

International schools are having to be flexible on fees as expatriate parents run out of cash. Louise, a single mother from Britain, said that her son’s school had allowed her to pay a partial fee until she found a new job after her redundancy in December. “According to the headmaster, a lot of people had come into the school saying they had lost their jobs so the school was trying to be a bit more flexible,” she said.

Most of the emirate’s banks are not affiliated with British financial institutions, so those who flee do not have to worry about creditors. Their abandoned cars are eventually sold off by the banks at weekly auctions. Those recently advertised include BMWs, Porsches and Mercedes.

Simon Goldsmith, a spokesman for the British Embassy in Dubai, said that that there were approximately 100,000 Britons living in Dubai last year. However, the embassy has no way of tracking how many have fled back to the UK. “We’ve heard stories, but when somebody makes that kind of decision, they generally keep it to themselves,” he said.

Police have issued warrants against owners of the deserted cars. Those who return risk arrest at the airport.

Heading home

3.62 million expatriates in Dubai

864,000 nationals

8% population decline predicted this year, as expatriates leave

1,500 visas cancelled every day in Dubai

62% of homes occupied by expatriates 60% fall in property values predicted

50% slump in the price of luxury apartments on Palm Jumeirah

25% reduction in luxury spending among UAE expatriates"

El Gouna

The most exceptional meeting we had in the entire study trip was with Naguib Sawiris, the CEO of Orascom Telecom.

Orascom Telecom is the largest telecom operator in a number of emerging markets including Pakistan, Algeria, Egypt, Iraq, Libya, Zimbabwe, Tunisia, and Bangladesh. Naguib is a famously high risk businessman, and has just bid to become the first mobile operator in North Korea.

Since Naguib was on the vacation at the beach town his family created, he flew our group of 40 people from Cairo to El Gouna (a beach town his family has created) for the day.

He was one of the most interesting speakers I have heard over the past two years. His father was one of the wealthiest Egyptians until his construction business was nationalized in the 1960s. The family was reduced to poverty. Then Naguib's father, later with the help of his three sons, built the current business up to its $30B total valuation. It seems to me like watching his father's rise and fall and rise inspired Naguib's determination to seize opportunities and to take risks against the advice of all others.

I have been meaning to write more about this for the past five months, so I just decided to post what I have now and to add a few pictures.

Dubai

An email series of pictures showing all the new construction in Dubai has been floating around so I decided to share it. I am including two of the most surreal below.

Dubai is absolutely crazy. Supposedly 20% of all the world's cranes are in Dubai. There is construction everywhere. But so far, demand still seems to be outstripping supply. We talked to a few ex-pats who were renting homes in Dubai. They said that for a nice, 3br/2ba place they were paying us$20,000 per month in rent!!

Everyone we talked to on the commercial side said they were sold out as well as so many multinational companies are moving their Middle Eastern headquarters (or global headquarters, like Halliburton!) to Dubai and need real estate.

More to come.

Dubai in 1990
Dubai in 2008

Shanghai update - new photos

Check out some of the recent photos Jian Shuo posted of the Jinmao Tower in Pudong. Really cool views of some of the crazy development that is continuing in Shanghai.

Middle East Fashion Update

The clothing choices here are worth noting.

In Dubai and Oman, almost universally, local men wore long white full length robes called dishdashas. In Dubai, men also wore a white headdress held in place by a black rope thing like a crown. In Oman, men also wore a headdress but it was tied a little differently and typically had a multicolor design.

Women in Dubai and Oman wore full length black robes, usually with a burqa covering the face completely.

In Jordan, most people wore western clothes. Many women wore head scarves though and many men wore headdresses. There are 3 primarily headdresses in Jordan - white, black checked, and red checked. We asked one of our tour guides if the colors had any significance. She said that historically white was worn by Arabs from the gulf, or by Jordanian Arabs in the summer due to the heat. The black and white checked was a historically Palestinian design and the red and white checked was a historically Bedouin design.

Today though the colors don't mean as much as all the headdresses are made in China anyway.

Dubai - Welcome to Middle East Mayhem

My Middle East trip began with a day in Dubai, the most liberal city on the Arabian peninsula and the largest city in the United Arab Emirates (UAE).

I am traveling with three friends from Stanford - two of my roommates, Rob and Jason, and another friend Owen. We spent our first day of the trip in Dubai basically to all meet up from our various flights in and to catch a flight to Oman.

The first thing we did upon arriving in the Middle East was, of course, go to the best water park in the Middle East. The Wild Wadi Waterpark (www.wildwadi.com) was awesome. It featured the pitch-black Tunnel of Doom, the Jumeirah Scairah (at 80 km/h the fastest waterslide outside North America), and several pretty cool water slides called blasters that shot you up the slide before you slid down it. But the best parts were the views of the Arabian Sea and the Burj al-Arab hotel right next door. The sail-shaped Burj is both the signature landmark of Dubai and reputedly the nicest hotel in the world.

Since I am coming back to Dubai for a week later this trip, I will save most of my commentary on Dubai until then.

But here are a few first impressions:

• Despite the occasional English mistranslation or knockoff (like Safestway grocery store, TGI Thursdays restaurant) Dubai was impressively first world.
• Dubai is under incredible construction. 20% of the cranes in the world are currently in Dubai which is even more amazing since there are only just over 1 million Emiratis who live there (and about 3 million expats, largely poor Indian workers and rich Western expats)
• Dubai is incredibly rich. The city just exudes wealth - in fact the biggest contrast I felt with China was that while China just feels like growth, Dubai feels like money