Monday, May 19, 2008

The Sorry State of UAE Real Estate

by Sheikh Sultan bin Saud Al Qasimi
Chairman, Barjeel Geogit Securities and Cll


One has to wonder about the lack of government supervision that allows firms to issue press releases that are clearly stretching the truth, break promises that begin with delivering real estate projects late or never and jeopardize the reputation of the UAE buy mistreating foreign labour.

It seems like not a single day passes without yet another extravagant announcement about a new real estate project that defies gravity, the laws of nature and the laws of finance.
One has to wonder about the lack of government supervision that allows firms to issue press releases that are clearly stretching the truth, break promises that begin with delivering real estate projects late or never and jeopardize the reputation of the UAE buy mistreating foreign labour.

Take the case of a local development company in the UAE that is owned by GCC shareholders. This firm claims to have AED300 Billion under development, which roughly accounts for 75 percent of the GDP of Abu Dhabi. The firm has announced a project "in excess of US$20 billion" in a country that has a GDP of US$36 Billion. Does that make sense to anyone else? It clearly escapes my understanding. How can the government allow such press releases, and how does the local press publish them without verification? To put things into perspective, this case is similar to someone claiming to have a project "in excess of US$ 7 trillion" in the US (roughly 55 per cent of the GDP).

Another local company, which is one of the few home-grown brands to go regional, claims to have a portfolio "in excess of US$40 Billion." This is clearly an example of a company that bit off more than it could chew. A local news report found that out of the 15 advertised projects in Dubai that the company was developing, all were running, "substantially behind their projected completion schedules" to the extent that investors were threatening to withhold future payments to the developer. Oddly enough, one of the few publicized cases of real estate developers fleeing the country after selling off planned projects to unsuspecting investors to the tune of AED14 million has yet to be resolved.

Copycats
Another issue plaguing the real estate sector is the copycat culture that is about to make our beautiful city of Dubai into a sameville mini-me of other cities around the world. For example, more than one project currently promises to replicate the Eiffel Tower in Paris; moreover, as if copying individual landmarks was not enough, one project even threatens to replicate the entire city of Lyon in Dubai. A contender for the most profuse project award has to be the Falcon City of Wonders that has pledged to reproduce. "the Pyramids, Eiffel Tower, Taj Mahal, Great Wall of China and the Leaning Tower of Pisa". Tatweer also has its own replication process going on within the Bawadi project.
Don't people understand that, what has made Dubai great is the spirit of entrepreneurial originality? Shall we wait for a project that promises to replicate the entire city of Abu Dhabi in Dubai or maybe the Holy Shrine of Mecca?
Labour Pains
A different case of construction workers woes emerged in the autumn of 2007, when 40,000 employees of Arabtech went on strike over low wages that, according to the official UAE news agency, "turned into riots", with stones being thrown at police. This situation could have been dangerous for the entire country if you consider that the size of the Dubai police force is around 15,000 personnel (they were outnumbered three to one).
The management of Arabtech must be proud now that it has reported a 115 per cent increase in profits to US$ 93 million in the 2007, despite serious damage to the UAE's reputation and social security.
Basically, because the company didn't meet the labourers demands for an AED90 Million increase per year (a sizeable 25 per cent of its profit), the UAE was unfavorably featured on the front pages of various newspapers, websites and TV stations around the world as a country that does not treat its "guest workers" fairly. Was that decision worth the damage?
Other Emirates
Sharjah's real estate development is the least planned in the UAE, with problems relating to parking, electricity cuts, water stoppages and general frustration about the sorry state of roads. Despite a daily headline in the local press, all seem to be well on course to staying exactly the same. Abu Dhabi should pay attention to the plight of its sister emirates before launching gigantic projects in the relatively calm capital island that will result in traffic chaos similar to what Dubai is experiencing today.
How do we even account for such a collective failure of engineering and planning? Clearly the UAE authorities were not prepared for such a fast pace of development. For a country that proudly claims to have US$500 billion worth of real estate projects under development, it is high time for the federal government to enact serious nationwide laws and regulations that will set this industry straight.
Courtesy: MONEY works magazine March 2008

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