A few months ago I wrote a piece comparing the pros and cons of living and working in Dubai – the booming city in the Middle East most closely aligned with western norms. Perceptions were that expats could go there and earn vast sums of money while living in luxury. Off course, the reality was that living in a government driven expansionary city has its fair share of challenges. Overall though the decision really came down to your situation in life and what you wanted. If you were focused on earning as much as possible then I would say Dubai is was the place to be, however with a family other factors needed consideration. But how times have changed as the winds of economic fortune reversed.
Due to the global economic crisis and the fading fortunes of the oil rich Arab states, things have changed dramatically in the whole region. For those looking to move to Dubai in order to earn the big bucks, the time to do so may have passed you by. With a slowing economy and globally tight credit markets, Dubai’s economy could be in for one hell of a crash given its significant dependence on its property market.
The WSJ reported that the city’s six-year property boom appears finally to be over, with asking prices for some homes here falling as much as 19% in October from the previous month, according to a well regarded HSBC survey. The survey provided the first quantitative evidence of a significant correction in Dubai, claims that the government is still denying. The bank warned of “protracted weakness should lending practices remain in place for awhile.” Banks have significantly tightened lending—requiring bigger down-payments and increasing mortgage rates, which increased by as much as 200 basis points.
With the housing boom appearing to have come to an end, fears about Dubai’s ability to repay its ballooning debt have begun to surface. The city-state doesn’t have the large reserves of oil that many of its Middle East neighbors enjoy. Instead, Dubai has financed its economic diversification in recent years with massive international borrowing by the government and by government-controlled corporations. Dubai officials have said repeatedly in recent weeks that government finances are sound. Analysts say the oil-rich federal government of the United Arab Emirates, based in Abu Dhabi, would lend a lifeline in a crisis. However even that may not be enough to meet its massive obligations. This has been reflected in the local stock exchange which has taken a pounding, down 62.7% year-to-date, driven down by property and financial shares.
With a rapidly slowing economy moving to Dubai is definitely more of a risk now. So weigh up your options carefully if you are thinking of moving because all that glitters is not gold.