Get ready for the ride

There has been much hand-wringing over the past year or so over whether the construction bubble will burst and leave a mess in the UAE that could take years to recover.

Well, I should say there is a lot of angst among economists whether the current boom will go to hell in a hand basket. Not so much for developers and speculators. For them every day is a money-making day with the gravy train barreling down the tracks at full speed.

Maybe they know something I don't. But I wonder just how long Middle East developers and contractors can remain immune to the ravages of the real estate crisis and tanking economy in the West.

Yet, for now, any developer with a fistful of cash can come to Dubai as if it's the 21st century version of the Nebraska land grab. Cadillac Escalades are the new covered wagon as investors roam beachfront property to plant the next 5-star hotel and resort.

Hotel occupancy rates are at a staggering 85%, making the UAE the envy of every Western hotel owner. Emirates airlines next month will launch a direct Dubai-to-Los Angeles flight with enough luxury appointments to intimidate even Donald Trump. The airline already has direct flights from London, ensuring a steady stream of tourists with fat wallets.

So demand is high and the mantra is to keep up supply.

But then there are troubling signs on the horizon like the Damac debacle when investors accused the company of backing out of a development deal to sell land that has trebled in value over five years.

And the looming US/Israel/Iran crisis could severely dampen Western interests in the region no matter what kind of rosy spin the development community puts on it.

What could offset these pesky doom and gloom scenarios is that if Dubai really hits a population of 5 million people by 2015, then developers' zeal to turn the city into a skyline of commercial and residential towers may be justified.

In other words, the construction boom in (as long as there is oil money to spend and the woes of the US economy stay on its own side of the world) the UAE can continue to enjoy unprecedented growth that will exceed anything a municipal planner in the West ever imagined.

That's not to say that Dubai couldn't serve as a cautionary tale of excess if everything goes belly up due to war and a recession, but whatever happens we are in for an interesting ride.

Rob Wagner is the editor of Construction Week.

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Psuedo Economics & Logical Fallacies
Posted by Trojan on Tuesday 19 August 2008 at 15:45 UAE time

The frustrating thing with many editorials on this site and the regional media is that they are not only based on hearsay and kitchen table economics, but they are often times lacking sound logic.

I am not going to argue about the lack of any sound economic foundations in this article, I am only going to point out to one very fundamental logical fallacy that was repeatedly committed in this article, that of Affirming the Consequent.
It goes as this: If A then B. Therefore because B, then A.
What the writer is implying in this article is that because there are luxury flights from Dubai to LA, then there is "clearly" high demand. The reverse would be logically true, but that does not necessarily mean that the causal relationship goes both ways. Why? Because you are not dealing with an airline subject to the forces of the free market (i.e. subsidies). For example, Aviation Week reported that Emirates runs at a utilization rate just under 70%. In these days of high fuel prices, any Western airline running at these kinds of rates would have long been dead, let alone placing an order for 58 A380s.

I won't go into the fact that hotel occupancy rates have declined this summer compared to last summer, the absence of thorough statistics and surveys of the real estate market conducted by THIRD impartial parties, the excess liquidity....etc., etc.

In other words, the whole "demand" assumption needs to be brought under questioning.

Damac did not back out of a development deal
Posted by Craig, Cliddesden, UK on Monday 18 August 2008 at 19:53 UAE time


Damac did not back out of a development deal. It is true that they tried - and it is true that for a certain period they shook the confidence of real estate investors in Dubai - however, thanks to the application of sense and fairness by the RERA organisation, the development was reinstated. As an investor in Palm Springs, I now look forward to the development being delivered as originally planned.

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