A six-year boom that turned sand dunes into a glittering metropolis, creating the world’s tallest building, its biggest shopping mall and, some say, a shrine to unbridled capitalism, has grinding to a halt. Dubai, one of seven states that make up the United Arab Emirates (UAE), is in crisis. So, too, are the western expatriates. Many came here expecting to make millions in property and to soak up a lavish lifestyle living alongside footballers, actors and supermodels.
But the real estate bubble that propelled the frenetic expansion of Dubai on the back of borrowed cash and speculative investment has burst. Many westerners are being made redundant, or absconding before the Sharia legal system catches up with them. Half of all the UAE’s construction projects have either been put on hold or cancelled, leaving a trail of half-built towers on the outskirts of the city stretching into the desert.
Deserts have a way of reclaiming whatever is built upon them. In the case of Dubai, the global financial implosion has sent that process into overdrive. After six years of frenzied expansion, and nearly $600 billion went into construction, reality has come rushing into view. After the party was over, Dubai, the second-largest member of the U.A.E., is struggling under $80 billion of debt amassed during the expansion.
Dubai's expansion was as ambitious as it was improbable. Dubailand, a $64 billion mixed-use development initially planned at 107 square miles, was to be the world's largest collection of theme parks, shops, residences, and hotels. For now, though, its roller coasters, life-size dinosaurs, snowy mountainscape, and polar bears will remain a fantasy, one of the gaudier casualties of the economic downturn. While formal cancellations are rare in Dubai, a number of other projects have been delayed or scuttled, including an underwater hotel; a Tiger Woods golf course; a residential community set among full-scale replicas of the Seven Wonders of the World; a rotating skyscraper; and a beach designed by Versace, complete with chilled sand.
Dubai was a modest trading settlement until the 1980s. Fueled by cheap credit, tax-free living, and limitless ambition, the city-state pushed into the desert and up to the sky, culminating in the frenetic growth of the past six years. Now, with cash scarce and many of Dubai's expats moving away, the cranes (a quarter of the world's supply) have quieted and the streets are all but empty.
Once Dubai's most valuable import, foreign laborers have become a liability to their former employers. Hundreds of thousands of them, mostly from South Asia, were drawn by the promise of plentiful work and money to send home to their families. Now that much of Dubai's construction has ground to a halt, many are being sent home; the number of migrant workers here has reportedly fallen by a third. Of those who remain, many are locked in labor disputes: They can't work, but can't leave. These jobless Bangladeshi men can't return home because, as frequently happens, their employers confiscated their visas, effectively leaving them shackled. Living four to a room in a labor camp, they haven't been paid in months. They say they live as "ghosts" in a "prison," unacknowledged and unknown.
Construction of the much-hyped project, an archipelago of 300 man-made islands designed to resemble a world map, helped extend Dubai's 45 miles of natural coastline to 467 miles, enough for everyone to have waterfront property -- or so the brochures promised. The site used more than 34 million tons of rock and 320 million cubic meters of sand (making Dubai, oddly, a sand importer). State-owned mega developer Nakheel promotes the islands as "a blank canvas for orchestrating your own version of paradise, and where you'll discover that the World really can revolve around you." To some, however, the project represents Dubai's fundamental flaws: overbuilding and poor planning. Despite prices ranging from $20 million to $50 million, the islands are without power or sewer systems. And while 70% of them have already been sold, development has begun on only one.
As expats take flight, indebted and disillusioned, they leave behind relics of their former lives: new cars, left to accumulate dust and the comments of passersby. The government will not release numbers, but it's estimated that more than 3,000 abandoned cars have been found in 2009, many with keys in the ignition, an apology note on the windshield, or maxed-out credit cards in the glove compartment.
Damage control is already underway. Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum has consolidated his hold on the debt-laden emirate, downgrading powerful figures behind the city-state’s boom that turned to a bust. The ruler has sacked the governor of the Dubai International Financial center (DIFC). He has also removed three members from the board of Dubai’s main holding company, the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year.
Dubai has been cranking up efforts to tackle its $80 billion debt pile with senior officials heading to Asia to meet potential investors amid reports that one of its most indebted companies has repaid a $1.2 billion bond ahead of schedule.
Top officials from Dubai’s Department of Finance is reported to have met fixed income and Islamic investors in Hong Kong, Singapore, London, Dubai and Frankfurt ahead of possibly selling more debt this year.
Sheikh Mohammed is trying to salvage his business empire by merging assets, said Christopher Davidson, a professor at Durham University in the U.K. “The ruler’s main government-backed companies are on the verge of bankruptcy and rapid centralization of these bits and pieces is needed to hold them above water,”
Abu Dhabi, which has 90% of oil in the UAE, holder of the world’s sixth-largest crude reserves, bailed out its fellow emirate in February with a $10 billion Dubai bond issue subscribed entirely by the UAE central bank. Dubai is seeking to raise another $10 billion, a significant portion from the federal government in Abu Dhabi.
Perhaps Dubai has taken its ambition to be the the best in everything they do a bit too far too fast. The crisis has firmly placed its foot on the ground. How is it going to pay back the massive debt? Will it ever come back to its former glory? Let us wait and watch.
Courtesy: Fast Company
Dubai goes down...Good informative post :)
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