Aussie born colleague Joel Bowman of The Rude Awakening lives in Dubai. We wondered whether the place was the bubble we had heard, so we posed the question to him. His reply:
“My short stay here in Dubai has led me to believe that Dubai & Co. is a largely unsustainable enterprise.
“Dubai’s lifestyle makes the average American look like a prudent, energy-conscious, environmentally-friendly health nut! I read the other day that 60% of the average Emirates’ total income is spent on consumer goods – Gucci totes, designer abayas and million-dollar number plates.
“The big difference I can see is that, save for the last few years, the vast majority of America’s wealth accumulated over time and from the productive, honest toil of citizens who forged metal, cracked bullwhips and invented light bulbs. Dubai’s wealth has come on fast and strong…and is not really the product of its own honest toil. Were it not for American, British and French companies – among others – who told them what all that black stuff underfoot was and what the rest of the world was prepared to pay for it, Dubai might still be a pearl diving port of a few thousand itinerant workers.
“If the American economy is drunk on its own home brew of ‘irrational exuberance,’ Dubai is sucking down straight tequila shots and desperately trying to catch up. We see it here everyday as the government squanders its unearned wealth on extravagant welfare programs and ‘National Identify Preservation’ boards and committees dedicated to ‘cultural heritage association’ this and ‘watchdog for immoral behaviour’ that. Then there’s the over-reaching controls on the economy – price fixing, wage manipulation, rent caps…the list goes on.
“I read with interest the ‘Frapp On Ice’ story just the other day – about how Starbucks will close 600 stores over the next year as discretionary consumer spending shrinks. That story was all the more amusing for me as I actually read it on my laptop… in the Starbucks that just opened in the lobby of my building last week. There are now six Starbucks within walking distance from my front door (and I don’t walk far – it was 125 degrees on Monday). We also have numerous Seattle’s Best, Krispy Kreme’s and the rest of the strip mall junk to go along with them. It’s like anytown USA…super-supersised. Which brings me to my next point…
“Jumeirah Beach Residence (or JBR for the cool kids) is a 36-building project that opened a year or so ago. Each building is around 40 stories and there is said to be space for 25,000 people to live here. But where are the people, I ask myself? So few apartments are occupied that I still notice when a conspicuous new light comes on at night in the surrounding buildings…yet, apparently, most are sold. I can’t see the newbies rushing to cut more keys as rent prices have, get this, risen by over 50% since we moved in in December. We took a relatively comfortable two-bedroom with a decent view, but if I walked in off the street today I couldn’t get a studio on the first floor for the same price.
“The story is similar elsewhere in the city too. Projects are developed, pumped through the massive Dubai & Co. media arm and, voila! the joint is 50, 60, or 70% taken! ‘It’s another success story,’ ring the papers ‘Dubai’s world-beating ingenuity triumphs again!’ chorus the king and his merry band of sycophants. But, best as I can make out, the biggest developments – including JBR, touted as the ‘largest single- phase residential project in the world’ – are still ghost towns.
“A friend of mine was out the other day to inspect a house he saw for sale in one of these new developments (Arabian Ranches, in this case). The price was at the top-end of his budget and he was ‘umming and ahhing’ about it until the estate agent casually threw in, ‘now, this property is only available in lots of 10.’ In other words, the development is being sold off in 10-house chunks to middle-men who then flip ‘em and burn onto the next ‘world beating’ development.
“So who’s buying all these vacant houses, streets and islands? Some – and not just the conspiracy theorists either – say Dubai is a massive funnel for dirty Russian money. Others, including myself, reckon speculators buy into the hype…hoping a bigger idiot will buy into it a year later and hand them a handsome return.
“The trouble is, sooner or later you’re going to run out of idiots. Even here in Dububble the supply of them is not without limit.”
for The Daily Reckoning Australia