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."
Bill Bonner
for The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Jeff Nicolas on 29 August 2008:
You forgot to mention zero income and company tax. Countries that do not penalise you for work and creativity are getting fewer, a big fault of the Western World, baggage that Dubai does not have.
Comment by Akber Jaffer on 3 September 2008:
For those of us who have lived in Dubai for donkey years, we do not believe in "Is Dubai the bubble it's Made Out to be?" Dubai, indeed beats all economics, not now but even in the 80's. Perhaps, Bill should have researched the stats of the pearl diving port.
From a population of 180K to close to 2M in 30 years, Dubai has invited all including Bill and others who find this place not only friendly but with a fair opportunity to prosper.
The empty apartments that you see at JBR are not necessarily unoccupied. I know of hundreds of businessmen who keep a second home in Dubai and they stay occupied only for a few months in a year. We are also encompassed by 2.2 Billion of the world's population who have some kind of red tape in their country and Dubai is a safe haven for them.
What you call middle men are investors from across the world, who find Dubai a lucrative place. And the idiots that you talk of are benefiting from their investments.
There's an acute shortage of accomodation in Dubai- with a 10% growth of annual poplulation, the 280,000 (to be ready by 2015)odd units will not be sufficient to accomodate the rising population who (including Bill) wish to stay in a country that allows you to live well if you can afford, do your work without red tape provided you stay within the bounds of the law.
Cheers!
Comment by Gian on 29 September 2008:
Hello, i only have to say one word... FLORIDA!!!
i still remember the whole ambition, inocence and stupidity there, with 1000's of empty houses "but is Miami, people will buy it" well...they didnt do it, and now happened what we all know...
to the last comment...ok, believe prices can increase a 50% a year forever...nice, we all would like to live in that fantasy world..
Bye
Comment by chris on 7 May 2010:
Dubai is a fascinating place, but I woudln't want to live there.
I wonder what immigration conditions obtain, and how much integrity there is in their system. If ownership of property virtually guarantees unrestricted entry rights to Dubai, (and if their immigration authority is open to 'inducement') then it helps explain the demand for residency, as well as soem of the vacant buildings-remaining vacant as useful boltholes for fugitives. Not that I suggest criminals make up the Dubai big-tower population.
Even apart from the issue of making a living there, what sort of society would greet the unattached individual? I'd feel like a well-fed bird in a gilded cage to live there in the unreal conditions you describe.
Comment by Biker Pete on 7 May 2010:
Ghost cities in China, ghost cities in the UAE, ghost cities in Florida... .
Who ya gonna call?!~ Goldbusters!~
Comment by Biker Pete on 7 May 2010:
Somethin' strange in tha neighborhood... just ONE minus point?!~
Comment by Steve on 8 May 2010:
Steve's quote of the day
"Rufuse to compete with morons who have rocks in their head if you do compete with them that makes YOU one yourself"
Comment by Biker Pete on 8 May 2010:
Close, but not your best, son. No, I think it's gonna be the one in which you state your love, your overwhelming need for property... like 02 itself...
Steve, that comment left me _flabbergasted_ I admit. I'd always considered myself the No.1-gung-ho-property-bull on the forum (at least the noisiest, anyway); then some 24yo comes along and states he cannot _live_ without property!!- Damn! That's commitment... .