The biggest commercial and tourism event of the year in the Middle East is expected to be Expo 2020, which opens in Dubai in October and lasts through the following April. Dubai hotels are brainstorming on how to host the estimated 25 million visitors coming to the emirate during those six months, new roads are being paved and the visa authorities have been beefed up to keep up with the huge demand.
Meanwhile, innovative technologies are already in place at the enormous malls, including navigation apps – and of course, Dubai’s security forces “are prepared for any scenario.”
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Dubai views the fair as a window of opportunity to attract foreign investors, businesspeople and tourists, and especially as a boon for the local real estate industry, which has been mired in a crisis. The hope is that out of the millions of visitors, some will buy an apartment, house, business or office space now on sale at rock-bottom prices.
According to real estate agents, real estate prices have dropped to levels last seen in 2010 and 2011 – maybe even less if inflation is factored in.
Real estate agencies are now offering furnished single-family homes at between $300,000 and $500,000, and two-bedroom apartments at between $150,000 and $200,000 – about half the price of three or four years ago. For example, this year some 90,000 housing units will be on offer, and 40,000 to 50,000 are expected to be sold. Next year, 120,000 housing units of various types will flood the market, which is desperate for buyers.
Add to this mix Airbnb, which for the first time began managing apartment towers – as opposed to its policy of only rentals in most countries around the world. In Airbnb, owners who are having a hard time selling their property or are unwilling to lower their price have found a short-term solution until the market revives.
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As for the government, it has set up a committee to keep a lid on construction and create a balance between supply and demand. It has also eased regulations and is letting foreigners own homes without the need for a local partner. Developers are offering buyers financing plans and convenient – and risky – mortgages that could get the buyers and banks into serious liquidity problems.
According to one plan, buyers put down 10 percent of the property’s value upon signing the contract and pay the rest according to a payment schedule based on the estimated value at the time of construction.
The problem is, after a few months, many buyers find themselves with an overestimate of the property’s value, based on which they receive the loan from the bank, and within a few months are forced to pay the difference in cash to the developer or sell the property at a loss. Sometimes these differences are in the tens or even the hundreds of thousands of dollars, which not even the sale of the property can cover.
For years, the feeling in Dubai – as in Israel – had been that housing prices could never go down, until the effects of the global financial crisis hit the emirate in 2009. Dubai suffered a huge deficit that forced it to borrow money from its neighbors that make up the United Arab Emirates.
The real estate industry, which produced about 16 percent of government revenues – compared with only 6 percent from oil and which provided investors with a 40 percent return on average, collapsed and brought the government debts topping $100 billion.
Ten years later, Dubai may have been rescued from this crisis, but the real estate sector is far from having recovered.
Even though Expo 2020 has energized the tourism and real estate industries and is creating new – and temporary – jobs for thousands of construction workers, the big question is what will happen after the fair ends.
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The hotels hope their occupancy rates will top 90 percent during the expo and some are already fitted to serve as business and management centers. The home rental front has also recovered recently, but most of these units will empty out after the expo – and join the huge inventory of homes waiting for renters or buyers.
The hotels are also expected to drop back to their regular occupancy rates, between 70 and 75 percent, and many of their employees, most of them foreigners, will return to their home countries or try to build their own small businesses in the UAE.
The crisis in the real estate sector also has strategic implications as part of relations between Iran and the UAE, Dubai in particular. The de facto ruler of the UAE, Sheikh Mohammed bin Zayed al-Nahyan, has worked for years to stop Iran’s commercial penetration of the country. At the same time, Dubai has become a center of Iranian commerical activity where hundreds of Iranian companies do business – and have also taken part in money laundering and gold smuggling as Tehran tries to skirt the economic sanctions.
The crisis of 2009 and the approximately $20 billion in aid that Dubai received from Abu Dhabi forced Dubai to toe the line of Sheikh Mohammed’s policies and join his policy of blocking Iran. Some 50,000 Iranian citizens left Dubai, dozens of companies shut down and visas were granted to Iranians in very limited numbers – if at all.
But as the real estate crisis bit, Dubai decided to strengthen its ties with Tehran and let Iranian investors – who are looking to move their capital out of Iran – open business centers in Dubai.
Sheikh Mohammed even signed a security cooperation agreement with Iran personally and ordered his forces to withdraw from Yemen, where they fought against the Iranian sponsored Houthi rebels. It’s now possible that economically stricken Iran will help rich Dubai recover from its real estate crisis.