That Dubai too has been hit by the slowdown has caused much glee among those envious of its dynamism, but in the long term the recession can only make it stronger
All the reports coming out of Dubai in the past few months have been about job losses and ailing developers. The harshest have been in condescending tones, saying that it was all bound to end in tears. This has revealed the price that Dubai pays for its extraordinary energy and success - it gathers many secret admirers, but true friends are a bit thin on the ground.
Naturally, the developers suffering most in the region are those involved in residential property, where financing was required from advance sales, off plan. The buyers are simply no longer there - for a year or two. The pace at which this market has collapsed is astonishing.
Global recessions are clearly very difficult for those who get caught in the wrong place at the wrong time, whether they lose their jobs, make heavy losses or get saddled with negative equity. However, in the longer term, recessions might be regarded as a much-needed regulator, particularly in the property and construction industry.
In recent years, Dubai has had to cope with a seriously overheated industry, whose appetite to innovate and expand was relentless. I saw this first hand throughout 2007 and 2008, while working with Majid Al Futtaim Properties, which is the leading developer and operator of shopping malls in the region. Its assets include Mall of the Emirates, one of the largest-grossing shopping centres in the world and contains the famous (some say infamous) Ski Dubai.
The present situation in the emirate is a major change from a few months ago, when the problem facing developers was whether they would be able to find enough architects, engineers, quantity surveyors and contractors to carry out their projects. I received a memo on 21 August 2008 from a colleague in Majid Al Futtaim Properties, who said, “I have a major concern, that if we do not, in the immediate future, form alliances with consultants, contractors and subcontractors, our competitors will have done so with our partners of choice.”
I did not agree with this approach at the time, and fortunately the company never acted on this advice. As a result, Majid Al Futtaim can now make a choice from the best of the industry. Make no mistake: there are a lot of good people working in Dubai. The country would not have been able to achieve so much if this were not the case. However, an overheated industry also attracts a lot of people who would not otherwise get themselves into senior positions.
I have personally witnessed some excellent service in the region, but equally I have seen firms that have been aloof and arrogant, working only on a time-charge basis at inflated rates, “throwing people” at the job and still failing to provide a good-quality service. Clearly, that era has come to an end and Dubai will be the better for it.
If there can be a good thing about a serious downturn, it is that history tells us that usually the best survive. This recession, in common with others, will go through a cycle:
1. The realisation that there is a problem.
2. Battening down the hatches (cancelling as many projects as possible and making a lot of people redundant).
3. Opening the hatch a little to see that the world is still turning and there are still billions of people to feed, clothe, house and entertain.
4. Stepping out a little to explore the market again and finding that the prices are more reasonable than they were before, making some projects viable again.
5. Restarting a lot of projects, using the best of the industry.
When these phases go through their full cycle, the result is an industry that makes a slow recovery and has a more sustainable future.
For some time, the tiny country of Dubai has attracted more worldwide criticism about sustainabilitythan any nation on earth. Paradoxically, it is the present recession that provides it with the greatest opportunity to redress the balance. It deserves to succeed, because it has made our industry and the world a more exciting place.
Stan Hornagold is a director of Marstan Group.
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