Tuesday, May 12, 2009

Still more elephants

Real estate. As far as industries go, this one has been hit hard by the global recession. Unless you have a suitcase full of cash stashed under the bed, buying property means having access to credit--and being able to pay off a loan. With both of those factors  kind of tenuous these days, real estate sales have, in broad terms, cratered.

No place is this more evident than Dubai.

Full disclosure: I haven't been there yet. But a major and ongoing story here is the comparison between how Abu Dhabi and Dubai managed their growth. Dubai adopted an "anything goes, inshallah" mentality, and the result is that a tourist wonderland sprung up basically overnight. Visitors came, and so did their cash. It worked beautifully for a place with almost no oil production.

Abu Dhabi, which has what scientists call "a crapload" of oil, has expanded plenty itself. Walking around town, there is no shortage of construction sites, T-cranes and scaffolding. But unlike Dubai, these projects are (for the most part) not elaborate attractions. They are apartment buildings and hotels. Admittedly higher-end, but not anything that would look out of place in a New York or Chicago.

This slight difference in approach--the practical vs. the wondrous--seems to have paid off for Abu Dhabi. Access to capital is easy, construction is going on around the clock and in fact Abu Dhabi essentially issued a bailout package to the struggling Dubai.  And the housing shortage, although a major pain in the ass for (let's say) an American guy who happens into a journalism job in Abu Dhabi, is fueling the development here... it's not just building skyscrapers for the sake of building skyscrapers.

Regulators are gearing up to review all outstanding developments under a new law that gives them authority to cancel projects that do not start construction within six months of being approved by the Dubai Government. They are already considering cancelling 27 projects and are ready to halt additional developments that show no sign of being built and force developers to repay any outstanding amounts.

Marwan bin Ghalita, the chief executive of the Real Estate Regulatory Agency (RERA), said the new regulation would bring transparency to the market and encourage developers to follow through with their commitments.

“Many of these projects are from developers that are coming to us and saying ‘we don’t want to be in trouble’,” Mr bin Ghalita said. “It’s better to cancel them, rather than leave them dangling. It will give the market correct data.”

Dubai is hurting. Abu Dhabi--so far--is not. We'll see if the emirate's fiscal conservatism, not to mention it's gigantic oil reserves, continue to pay off.

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