What Does Dubai Mean?
November 30th, 2009
Much has been voiced already about the events coming out of Dubai. Are they small and contained, and will pass from the headlines in a matter of days? Or, are they indications of an ongoing pattern of debt defaults that will continue to spread for an extended period until global deleveraging runs its course? What does this all mean for industry, the economy, and asset management?
While, in absolute size, this event is not large, it seems to be reigniting some fears of contagion. As I wrote recently, market sentiment moved from fear to greed quite quickly in less than a year. This creates an environment which is ripe for disappointment. Further, since we do seem to be experiencing an extended period of deleveraging globally, Dubai provides a reminder that there is much work to be done before we get the all clear signal that conditions are relatively normal again. Indeed, as I’ve written before, we seem to be in a “new normal” environment which will be unlike the recent boom times.
For asset managers, as well as managers of other businesses, the events of Dubai remind us that we must manage our businesses with the very best practices in order to succeed in the “new normal” environment. We need to move forward, but in a cautious way with great respect for unknown risks and events which could appear without warning. A well managed business is the best way to overcome such events without losing significant momentum.
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5 Comments Add your own
1.
Lynn Kennedy | December 2nd, 2009 at 4:41 PM
I am quite sure that the news from Dubai was a “controlled event”. I was in Dubai last year when the market “crashed” and as a veteran of the real estate business, it came as no surprise to me that the development activity there was not based on reality, nor was there a disciplined approach to any aspect of the development process.
A city created with sections with the density of NYC in five years is not a sustainable financial environment — with no land use controls to speak of, no land registry system and presumably no enforceable way to register debt.
Real estate in the long term will only work if there is discipline attached to the process of investing – reasonable debt loads, structuring of expiries, strong Landlord control of tenant covenants, development only when there is immediate demand etc. This discipline was not in evidence in Dubai.
Asset managers need to be strongly independent even in times of “irrational exuberance” and not seduced by “cheap
debt” and “hot markets”.
My experience tells me that there will be more announcements of this type over the winter months and throughout 2010.
2.
Jeff Margolis | December 3rd, 2009 at 10:50 AM
You definitely have more experience than I in this specific area, but your comments are logical. This will not be a one time event.
3.
Jaseem Khan | December 11th, 2009 at 12:54 AM
Definitely the author provide a great insight into the prevailing situation in the Arab land of opportunities. Indeed the tremendous scale of real estate construction was largely induced by cheap debt and more importantly, Greed.
In fact there was another area on which the real estate market was depending on, and that was tourism. As long as the two were booming, situation was great. But as the global crisis increased its intensity worldwide, the tourists numbers were also shrinking and so was the demand for the real estate. Also the number of people who used to came to gulf for employment was also on the downside. And today we are seeing its impact that will last for at least SOME time.
4.
forexstrat_egy | December 20th, 2009 at 8:01 PM
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5.
wheyp.roteinsideeffects | December 21st, 2009 at 3:44 AM
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