It is no great surprise that Dubai World is looking to its bankers for accommodation on a reported $59 billion of loans. I have been – and remain – a Dubai sceptic (read my previous comments here).
To these I can add observations collected while driving around the Emirates last week. Firstly, there are ‘To Let’ signs on a large number of completed buildings. Secondly, many building projects have been halted; the most notable of these being an entire ‘mini-city’ between Sharjah and Dubai.
The conclusion to be drawn from this is that there’s a gross over-supply of all kinds of real estate. Even if there was financing available to complete the moth-balled projects, who would occupy all that space?
It would be really easy to get involved in a smug “I told you so”, but I’d rather offer a solution that is more sustainable than a bail-out from one of Dubai’s richer neighbours, which appears to be likely.
Let’s begin by taking an alternative look at the role of Dubai’s government, which is effectively that of a property developer.
The global slowdown has unquestionably had an impact, but I’m of the view that Dubai would have hit headwinds anyway. It now finds itself grossly overstocked with all types of real estate inventory.
So, what I would do is kick out all policies or laws based upon nationalism (the usual benchmark for government decisions), and tie everything to rental agreements for property. In the case of Dubai, payment of rent is effectively revenue for the government, and is therefore a proxy for taxation.
Anyone who is willing and able to rent property can have residency in Dubai for the length of the rental agreement, and the monthly rent would be their sole tax responsibility. Opening a business would be dependent upon entering into a similar agreement for commercial space, and initially that would be their sole obligation to the fiscus. Employment of UAE nationals – if obligatory – would not be subject to the minimum wage currently in force.
Failure to pay rent, or criminal activity are grounds for immediate deportation and forfeiture of moveable assets.
Residents under this programme would be obliged to contribute to privately managed health insurance. A fuel levy would fund road maintenance and construction.
My thinking on the level of the rent is that it would be low – possibly only a little above the interest cost – with an annual increase. The power of compounding would soon elevate the rent to a level where some kind of return is being generated. The low return to start with isn’t an issue; the main thing is to get residents, especially ones who are contributing to economic activity of some sort.
The government/rulers need to be willing to embark on some radical changes to the general business and living framework, which as it stands is not conducive to the kind of outreach proposed under my plan. Expats complain of an inefficient, ineffective and arrogant bureaucracy. Based upon my own experiences, immigration officers could do with some lessons in friendliness.
My ‘dangerous mind’ has been quite active on the issue of selling Dubai. So, if anyone in the Dubai elite happens to read this, give me a call.