2008 has been a tale of two stories for the UAE as Dubai and Abu Dhabi continue down their differing paths of growth. The news will continue to be mixed for Dubai, as western observers talk of bubbles bursting - and such negative perceptions will not help change the underlying global sentiment hitting Dubai even further. But as we have said in the past, Dubai won't hit a recession, there just won't be as much growth as was the norm in the early part of this decade. Even without the current economic turmoil, something would have had to give, and maybe this is the time for Dubai to take stock, phase things a little further and play for a better end game.
The big issue for Dubai will be some of the audacious projects that will not complete on time. But it's not just on the larger end of the scale. One must also look at those developers who rely on financing to complete a project of a hotel, say. Such developers will, and indeed, already have, scaled back. Quite simply, they have not been able to find the financing to be able to complete the projects that they have started. The banks who had initially offered to put up the money are cherry picking safe investments. And what you will see is some down time on some projects. Some projects will not see the light of day....ever.
Even if the Dubai government inject money into the economy to kick start the growth again, it wont be enough to maintain the same levels of growth as was predicted fr 2009. But that's not a bad thing. Only the realistic much needed projects will come to fruition. The Dubai Metro, for example, is not something that can fail- and it will not. Government initiatives will be looked at with a fine toothed comb and prioritised.
But one must look at some of the headlines staring at us as we enter this new year. Hotel occupancy has fallen to a level circa 70%, way off the highs of the late 90s which have been seen previously. It's a combination of too much supply has come to the market over the last year and a downturn in the tourism real number growth. Less people than expected are traveling, able to travel or want to travel. People are worried for their future, in many parts of the world due to the slowdown and this is how Dubai is affected by the highs and the lows of the global economy. Hard up travelers and tourists will vote with their feet by staying put or taking a less extravagant trip than visiting the spend culture of blinging Dubai. Unless Dubai becomes less blinging and rates fall, there will be even more woe from the tourist market.
Prices are falling,property-wise all across Dubai, from high end Burj appartments right down to lowly the Greens one bed rentals. And this is where Abu Dhabi will be hit also. If there is any inflation in any of the prices, they will very quickly come down to their correct market adjusted price. There is no speculation game any mroe, and those that think that there is one, will need to be in touch with the market to be able to spot those bargains. At the end of the day, there is value in Abu Dhabi's proposition at this early stage of its development, and thus there is a mint to be made from the smart strategic investor.
And while there are other factors in play, oil will continue to be a headline grabber. No doubt much has been stored in the coffers for a rainy day, but 40 dollars is not the level that the oil producing players like it at. Watch it sky rocket over the year. And watch for a further rocky ride across all the bourses in the new year as they look to try to restore value, and shareholders try and claw back at realising a lower loss than they thought they would be hit by in September.
One thing is clear, this is the most uncertain year that the UAE has entered in its existence, more so for Dubai - and for that uncertainty, this could be a very interesting year for many observers of this Middle East success story.
Labels: Abu Dhabi in 2009, Dubai in 2009, UAE in 2009
