Did the real estate bubble burst in Dubai for real estate companies?

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The main index of the Dubai stock market has lost about 25 percent in recent weeks and this is becoming a cause for concern. From the maximum of 5,331 points reached on May 6, it plummeted to 3,730 points this week (31 percent drop), accounting for the strong turbulence that shakes Dubai. The country of the United Arab Emirates is again at the epicenter of a real estate bubble, as happened in 2008, and ended up derailing the entire world economy. This is a financial deja-vu, something we have experienced and we refuse to remember, but it is the very force of the facts that install it again in the present.

The 2008 Dubai financial bubble was the product of the largest waste of real estate, which included a series of artificial islands, a pink castle of 1.5 billion dollars; a tennis court on one of the roofs of the Burj Dubai Hotel (where Roger Federer and André Agassi played in 2005), or a mountain of 23 thousand square meters for skiing throughout the year in the desert. The sheiks of Dubai thought big but borrowed a lot of money to carry out these projects. In 2014 the story begins to repeat itself as it was six years ago.

Declining market

For a little over a month, the financial market in Dubai has begun to suffer a beating per week as a result of its gigantic real estate bubble. The layoffs in Arabtec Holding, the largest construction company in the United Arab Emirates, have caused waves of panic and the collapse of the shares in the Dubai Financial Market. The fall in the shares of the stock market has declared the end of the bull market in the Dubai stock market, which remained for two years (June 2012), with an enviable increase of 250 percent in those 24 months.

If the symbol of the last boom in Dubai – which ended brutally in 2008 -, was a network of islands built with sand dredged in the form of a World Map and a Palm Tree, this time the symbols are leftover: the largest shopping center in the world, along with 100 hotels and the airport to receive 200 million passengers a year. All along with the speculative bubble of football and the World Cup of this sport that will be held in Qatar in 2022 (300 kilometers from Dubai). For example, although GDP slowed in the first quarter of this year, it reached 27.7 percent and was perhaps the highest in the world. Only real estate businesses grew at a rate of 38 percent in the first quarter, equivalent to $ 16.6 billion.

The government of the United Arab Emirates has taken steps to try to cool the market: among other things, the imposition of a 60 percent rate on the purchase of second homes and investment properties in Dubai. Despite this, the Dubai Land Department has insisted that the housing market is generally healthy. So, should we expect a crash like the one in 2008? For many, the fundamentals of the Dubai real estate market remain risky. However, instability in the Arab world (Syria, Egypt, and Palestine, Iraq) seems to be what drives price growth in Dubai. Arab investors do not have many stable alternatives to put their money. But it is the waste if you limit what will finally push the bubble to its collapse and provoke a chain reaction to world markets. Excesses are always paid

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