The big success story in the international property market is Dubai. The figures prove it. But this kind of rapid growth does not come without a price, finds Mark Eltringham.
The story of Dubai is generally told not in words but in numbers. And for a city-state that covers just over 1,500 square miles, those numbers add up to something quite out of proportion with its landmass, population and natural resources. If you’re involved in property or architecture, the figure you’ll have heard most is the one about the number of cranes – it is rumoured that around 30,000 of the world’s 125,000 construction cranes are currently in Dubai.
Dubai’s success in generating these numbers is not even about oil. Dubai is very different from other members of the United Arab Emirates in that oil revenues account for only six per cent of its gross domestic product. Its reserves are less than one-twentieth of those of Abu Dhabi, whose oil wealth has traditionally been the source of largesse for the rest of the UAE.
Instead of oil, Dubai is built on a brand. Dubai Inc is largely the creation of the current ruler, Sheikh Mohammed bin Rashid Al Maktoum, who has overseen an exponential growth since he came to power in 1993. He has created a platform for trade, financial services and tourism that relies heavily on chutzpah, jaw-dropping architecture, mega projects, big numbers and free zones for the development of specific businesses and property developments, providing springboards for multinationals. These include the Dubai International Financial Center, as well as Dubai Studio City, the Cultural Village, Dubai Waterfront, Dubiotech, Business Bay, Palm Island and The World archipelago, Dubai Internet City, Dubai Media City, International City, Knowledge City, Sports City and Festival City.
The Sheikh, who appears to see Dubai as a business concern as much as a state, is now looking to extend Brand Dubai beyond his own borders. Dubai International Capital, the organisation he set up to develop outside investments, is still in talks with Liverpool Football Club about a takeover. Another of the Sheikh’s investment vehicles, Isthimar, has acquired buildings in New York and has been rumoured to be in discussions about a takeover with EMI and Standard Chartered Bank in the UK.
So far, so glossy. But there are problems. One of them is that Dubai’s interests have met with some hostility abroad, especially in the US. Mark Povey of Dubai-based Transguard Group can see both sides of the argument. “You can take something like the proposed acquisition of US container terminals by Dubai Ports World and understand the unease felt by Americans,” he says. “But equally the feeling in the Arab world is that Dubai is just doing what it and other Middle East countries have been encouraged to do since the Clinton regime. Dubai is a major international player now and in many ways a model state for the Middle East, and the Americans can’t have it both ways.”
There are problems too with the local stock exchange, where insider trading is rumoured to be rife in spite of the government’s assurances that it is pursuing a model based on the financial markets in London and New York. Money laundering is an inevitable consequence of Dubai’s tax free system. And when Westerners (along with many people in the Arab world, especially young Saudis) commend the city for its fairly liberal attitudes towards drinking, prostitution and exposed flesh in public, they are overlooking a government that still has a bit of a problem with the idea of free speech. Local journalists working outside the International Media City enclave are still constrained by archaic laws and self-censorship. Internet access is restricted in most areas of Dubai, with a proxy server filtering out sites deemed to be against its cultural and religious values, including any domains with a .il (Israel) suffix.
From a Western perspective the pay and conditions of immigrant workers has always been a concern. According to some, building standards can be lower than in the UK, bordering on shoddy. Procurement methods can also be unclear thanks to local laws and practice, although many developers welcome the idea that you can take a very large project from conception to site in under a year.
The locals too are having to adjust to cultural differences. There are now almost as many Brits living in Dubai as Emiratis. The situation is mirrored in the rest of the UAE, where 80 per cent of the four million residents consist of non-nationals, and where population, driven by immigration, is growing at eight per cent a year. The rapid growth of the region has brought its own structural economic problems. The gap in per capita income at the top and bottom of the social scale has widened dramatically, an inevitable consequence of rapid GDP growth according to economists, but also one that reflects the low pay of certain sections of the immigrant worker community. In spite of its rapid development, there are major pressures on both the residential and commercial property markets as people flood to the area from all over the world. Residents say that their standard of living has fallen over the last couple of years. The lowest domestic rent you can expect to pay is now around £18,500 per year according to HR consultancy Digby Morris.
The commercial property sector is also seeing spiralling construction costs and rents creating tensions in the market. For some commentators, the next phase of development will have to focus on a mature market, based more on ownership of property rather than its creation. Chris Fountain is event director of CMPi and is developing a new event called Working Buildings Middle East, which will look at the development and management of buildings in the region.
As part of that he has commissioned a report which will look at those issues relating to the ownership of buildings.
“It has been estimated that Dubai is developing around 500,000 extra residential units in the next ten years,” he says. “Similarly there are currently 100 office towers that have been added to the market in the year to the first quarter of 2007. The question is firstly whether that will be enough. Second, will they be the right kind of space and finally what will happen to them once they are built. What we are seeing is the distinction between architecture and facilities management. It’s the same as the difference between sex and parenthood, between creation and responsibility.”
One man who will be taking a keen interest in this development is Mick Dalton, the Chairman of the British Institute of Facilities Management, who has recently moved to a new position in Dubai to promote the use and development of FM in the UAE. “The government’s decision to develop an economy that is service and tourism oriented has made real estate more valuable and that is what is driving the property boom,” he says. “Issues such as facilities management just haven’t developed at the same pace. It’s not enough to have world class buildings unless you have world class management of them.”
He faces a challenge getting this idea across, according to Transguard Group’s Mark Povey. “International clients are demanding 21st-century service delivery and efficiency, and Dubai is still reliant on labour intensive 20th-century methods. Managing to integrate into this very different business culture has been a major stumbling block for many companies and individuals here. We can expect to see this change as the market matures, but how exactly this will resolve itself is still uncertain.”