Over a century ago fishermen would dive into the Gulf’s azure waters to hunt for pearls and men in dhows would hoist handmade nets into the sea to provide the two main sources of income for local tribesmen in what is now known as the United Arab Emirates.
The Great Depression, coupled with Japan’s discovery of cultivating perfect pearls, all but destroyed the Gulf state’s pearl industry. But the discovery of oil in the 1960s transformed the barren desert landscape into sprawling metropolis of lavish skyscrapers, steel and glass centres of trade and commerce and pristine beaches.
“It was transformative. Sheikh Zayed and Sheikh Rashid in Dubai literally used the oil money to transform the landscape,” says Jim Krane, author of City of Gold; Dubai and the Dream of Capitalism. The capital, Abu Dhabi, and neighbouring Dubai wasted little time in investing their vast oil wealth in healthcare, education and national infrastructure for its tiny population while its tax-free environment, year-round sun and booming construction industry lured hundreds of thousands of foreigners to live and work in the country. Its rapidly growing economy saw gross domestic product increase 1,252 percent from $2.8bn in 1973 to $35.7bn in 1993, according to data from the World Bank.
But while Abu Dhabi, home to around 90 percent of its country’s oil exports, adopted a conservative, long-term approach to its economic development, Dubai, aware of its own less abundant oil supplies, implemented a far more aggressive approach to its economic diversification.
Tourism and real estate became the name of the game. The emirate ploughed billions of dollars into transforming itself into a global tourism destination. In the space of a few decades Dubai established its own airline, built the world’s first so-called seven-star hotel and erected lavish shopping malls that boast some of the region’s most outlandish attractions. A series of free zones, allowing firms 100-percent ownership, were also established as it sought to recreate itself as a global trade and commerce hub.
In 2002, Dubai’s government opened its real estate market up to foreign investors, granting them ownership rights for the first time. Foreign investors flooded the market, pushing up real estate prices by 75 percent between the start of 2007 and the end of 2008, according to Morgan Stanley.
“Opening up its real estate key sector was one of the key decisions that has made Dubai what it is today and put it into the global consciousness,” says Krane. “When HH Sheikh Mohammed decreed that foreigners could buy real estate, he unleashed a frenzy of pent up demand. The spotlight was on Dubai, they went as fast as they could and took it as far as they could. It was a classic bubble scenario, not dissimilar to Florida in the 1920s,” he adds.
Emaar Properties, Nakheel – a subsidiary of the conglomerate Dubai World – and statebacked Dubai Properties became synonymous with the emirate’s five-year real estate boom. While Nakheel became famous for its manmade islands in the shape of palm trees and the world, Emaar Properties made global headlines when it broke ground on the world’s tallest tower in 2004.
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