LONDON, 13 September 2004 — First it was Dubai as an entrepot, a free port city complete with Jebel Ali Port and its associated free zone, which became a regional hub for multinationals for their warehousing and distribution activities. This was supposed to be the flagship project of Dubai Inc.’s ‘Future Without Oil’ strategy in the early 1990s.
The subsequent lifting of UN sanctions against Tehran started to dent Dubai’s multi-million pound re-export business to neighboring Iran. Then it was Dubai as a duty free shopping haven with its famous annual “Shopping Festival.” In the last few years it has been Dubai as a bespoke tourism destination aimed at wealthy and middle-class locals, regionals and expatriates. The UAE, in a typically Gulf fashion, tried to compromise by “reforming” its ownership laws — expats can buy properties on a freehold but only in a few designated residential developments which are classified as “free zones.” Elsewhere they can only own property on a lease basis.
Still to come in the immediate future is Dubailand, the Arab Disneyland, the Middle East’s first dedicated recreational and commercial sporting city, complete with an 18-hole championship golf course which is being designed by top South African golfer Ernie Els; and specialized recreational facilities such as the David Lloyd tennis school, and a branded Butch Harmon golf academy, the first outside North America. Els, who is currently ranked third behind Vijay Singh and Tiger Woods in terms of tournaments winnings, is designing the course in association with US-based Nicklaus Design Company.
In fact, promoters of the $500 million Victory Heights themed golf residential project in Dubai land plan to go to the market at the end of this year to raise between $200 million-$300 million in financing for the project, which is scheduled for completion by 2007. The project is being developed by Bahrain-based First Islamic Investment Bank and Dubai Sports City LLC through a 50:50 joint venture on 25m sq ft of land located in Dubailand.
The common theme with all these developments is real estate. Dubai, stress some bankers and property experts, is one big overpriced property market. The real test will come when that market becomes a bubble and bursts.
The supporters of Dubai Inc. often stress that the ruling Maktoum family are “Entrepreneur Emirs” — any idea that has the potential to make money and put Dubai on the world map, is potentially a flyer. But Dubai also likes to see itself as the “Singapore of the Middle East” — a world class entrepot, politically stable, economically thriving, and technologically advanced. The similarities in fact are far from reality.
In contrast, Singapore’s education, health, and social security systems are second to none; and without any natural resources it has carved out an important niche as an international port par excellence; an oil refinery hub at Jurong Town; a commodities futures market; a top regional banking center, and so on. Above all, the Singapore economy is neither driven nor dependent on expatriate labor; and is highly developed with comprehensive legal and regulatory infrastructure.
Only recently, the image of Dubai Inc. took a setback, with the unceremonious and unexpected sacking of Phillip Thorpe and a few of his colleagues on the DIFC’s Regulatory Council. According to British media reports, Thorpe, an ex-FSA (Financial Services Authority) man in the UK, was removed because he questioned one or two of the real estate deals linked to the DIFC project.
Whether such developments will affect Dubai Inc.’s unstoppable march is debatable. First Islamic and Dubai Sports City’s Victory Heights plans to offer investors a comprehensive, gated, neighborhood environment with high-quality residential units catering for both local and expatriate families.
The residential units will be available to both UAE nationals; GCC nationals; and to foreign investors. UAE and GCC nationals can buy freehold homes, but foreigners will have to buy them on a 99-year lease basis. These leaseholds, explains Bala Subramanyam, CEO of Dubai Sports City LLC, may eventually be converted into freeholds by registering with the Dubai authorities, once a proposed law to allow foreigners to hold freehold properties in Victory Heights is adopted. Subramanyam is upbeat about the viability of the project, stressing that inquiries about the sale of the residential units in Victory Heights are already coming in.
The project, says Atif Abdulmalik, chief executive officer of First Islamic, “represents one of First Islamic’s initial investment transactions in the Middle-East. This development of the first privately-funded residential community in Dubai underscores Frist Islamic’s commitment to creating unique investment opportunities. An ever-increasing demand for lifestyle-orientated communities, coupled with the strong performance of Dubai’s real estate market, makes this a compelling transaction”.
