Is A $10 Billion Bailout Enough To Save Dubai?
We've been writing about Dubai's real estate troubles since last November when the worries about falling real estate prices and Dubai's crushing debt began to hit critical mass. As was predicted back then, their more oil-rich neighbor the United Arab Emirates might have to pick up the slack..For years Dubai has commanded attention with tall towers and exotic properties but it is Abu Dhabi that has the oil wealth.
Much of Dubai's exponential growth was fueled by international borrowing and a great deal of that debt is due this year. The Wall Street Journal reported on an announcement by the Dubai government that it is issuing $20 billion in long-term bonds with the first installment of $10 billion being subscribed by the U.A.E.'s central bank. The bond will be unsecured, fixed-rate paper, and yield a paltry four percent a year, with a five-year maturity.
This eases Dubai's immediate problems but does not address the fact that the Dubai's real estate market continues to be in trouble. The city skyline is dotted with cranes marking half-finished building projects. As in the U.S., banks are wary of offering big loans to developers currently. Back in November, Emaar Properties chairman Mohammed Ali Alabbar who is a top adviser to the emirate's ruler and also the chair of an advisory council set up to help Dubai maneuver through the financial crisis said at a conference that the country is looking carefully at funding projects going forward. Since the middle of last year real estate prices have come down by as much as 50 percent or more. Just last week Emaar Properties said that it would recommend withholding dividends at its annual meeting.
Projects that have been in the works for years are also finishing up putting more and more units on the market, waiting for buyers who are not there. Both laborers and professionals from other countries are also leaving the homes they once flocked to. The NY Times reports that cars left by fleeing foreigners sit abandoned at the Dubai airport. The government is unwilling to provide data on just how bad things have gotten in Dubai. Currently a new draft media law would make it a crime to damage the country's reputation or economy which could mean that local newspapers may not actually be able to report the news. With no real data to rely on, rumors are soaring as people speculate on just how bad the situation in Dubai really is.