Last week Dubai’s opulent Burj Al Arab hotel was lit up in a shimmering red as the emirate’s 180,000-strong Chinese population saw in the Lunar New Year in style.
To auspicious readers of the Chinese Zodiac, the coming Year of The Horse promises anything and everything from a stellar year in stocks in companies that sell wood to omens of a war with neighbouring Japan. Apparently.
One consensus among these experts however, is that global property markets will be spooked in the coming Year of The Horse. This is where it all gets a bit complicated: the horse is said to be characterised by fire, which is fuelled by wood (explains the stocks thing), which is the opposite of earth, another element, which they say bodes badly for the property market. Still following?
Eager investors don’t seem to have taken the ill omen to heart though. Last week, Hong Kong’s Chow Tai Fook Enterprises shelled out $1.9bn for a slice of Dubai Pearl, one of the biggest real estate developments in the emirate to go belly up during the financial crisis.
The $6bn project, launched in 2008, has largely been in limbo since Dubai’s property market collapsed, with its latest projected completion date set for some time in 2017. Chow Tai Fook, a conglomerate with interests in everything from casinos to jewellery, is controlled by Cheng Yu-tung, one of the world’s richest men with an estimated fortune of $21.1bn.
The deal is the latest example of the growing Chinese influence in the emirate, which now manifests itself in everything from building contractors along Sheikh Zayed Road, banks in Dubai International Financial Centre, to a huge Chinese supermarket selling knick-knacks in the middle of the desert.
Last year, one of the world’s largest builders, China State Construction Engineering Corp (CSEC), piled in on SKAI Holdings’ $1bn Viceroy Dubai on the Palm Jumeirah, investing more than $200m. One executive at CSEC was quoted as saying that these projects were appealing to wealthy Chinese who are increasingly interested in alternative investments outside the Middle Kingdom.
There are other signs of this trend. According to a report by consultant Jones Lang LaSalle last year, investment by the Chinese will continue to increase amid growing trade links between China and the UAE, as well as rapidly increasing property prices in the latter.
Investment from China, which in the last few years has witnessed a significant rise in the ranks of its wealthy, will continue to pour into the UAE. Constrained by capital regulations, Chinese investors have typically been limited to parking their money in low interest savings accounts, local infrastructure, or Hong Kong’s frothy property market. They are now eager to put their money to work elsewhere.
Following Dubai’s successful bid to host Expo 2020, some have forecast that property prices in the emirate could rise as much as 40 percent this year, while tourists continue to arrive in their droves. To add to this, the International Monetary Fund has just increased its forecast for the UAE’s economic growth in 2014 to 4.5 percent, despite warning over the possibility of a real estate bubble. All of this is music to the ears of overseas investors.
The economic picture in China is less rosy, too. Growth in the services sector hit a five-year low in January, while expansion in the world’s second largest economy could slow from 7.7 percent in 2013 to shy of 7.5 percent this year. Recent scandals in the country’s huge shadow banking sector also undermine confidence in the ability of local investments to pay out.
By pouring money into Africa in recent years, Chinese investors have also shown their mettle for emerging markets and with the liberalising of local foreign investment rules, money will continue to flow out of the country.
With talk of another bubble on the horizon in Dubai, however, they will be hoping that real estate prices do not gallop the wrong way in the Year of The Horse.
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