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21
Jun
2009

The beginning of 2008 was amazing. The real estate market in Dubai proved a lot. People started enjoying their status of being millionaires. It was all set. If some one talked about “bubble burst” or report the fall in demand in the middle of 2009, people thought him over critical. It was the wire of 2008, Dubai’s mega international property event THE CITY SCAPE started. People were so excited & many were thinking that the market will further boom. Truly speaking it could have happened, but unfortunately not. In the course of City Scape, the government announced that there would be no selling activity allowed at City Scape on Major Projects by private developers.

The reason was, they wanted them to comply with some procedures and benchmarks. It was good thinking by the government but the time was wrong. It was nothing but a gesture of REGULATION REGIME in Dubai property markets. It was really hard to absorb for the investors, who wanted to invest their money with in a market that wouldl be free and un-accounted. Just after City Escape, the federal government announced that property is not subjected to the Residence Visa provision. The pledge that made people to buy the well maintained desert was looking shaken.

The breaks were visible in property purchase, in response to this news. The Northern Emirates like Ajman were also in problem. They were the reflection of Dubai properties. Those who had no power to buy in Dubai, used to buy in Ajman. Ajman, herself had been facing electricity and infrastructure problem. In addition, the economic crises looked visible in January 2009. The government was raising the flags of their richness but expatriates started loosing their employments. Taxi drivers were no longer finding passengers. Tourist inflow was affected due to the decline in income of the people across the world. The companies that made massive sales in 2008 are still waiting for the receivables to recover. All above factors caused the robust property market to get worse. After putting forward the context, I would like to discuss why it happend? And what were the weaknesses that made it happen. I want to start from the point Why Dubai? (Before June 2008) Dubai was really a free market in the world. There were literally no regulations and no accountability of investments morality.

People across the globe considered Dubai a blend of east and west that provided free market with no tax regime. South Asian big shots always prefered their companies in Dubai or were simply based in Dubai to earn money from their home countries and park it in Dubai for best return on Non-Tax Investments. They generally got easy excess to Bars, Night Clubs and Prostitutes that made their social life wonderful. It was nothing but heaven for them. In fact the better way to explain is, the government was not Narrow Minded. They wanted people to progress in their country. They never rated people as Emirati (Local / National) or Expatriates. There were lots of people from Europe and Russia that turned their focus towards Dubai. They were merely interested in High Return, No Taxes and their cool life intact in Dubai. The law and order was another factor. The crimes in Dubai are about negligible. Summation is, Dubai was simply the place for them. If you think the most ideal place to live and work in the world so some times you ignore negatives in the magic. There were some crucial issues. First is simply there is no track of the activities.

The reason, the accounting principles or even accounting was missing. They were more interested in giving people a way to do business as they wanted. There were hardly any companies that conducted audits on international standards. It was the need of the time as no one would like to be tracked and the government of the country was not mature enough. They had the wealth of oil and best idea developers but they had lesser controllers. Audit, Accounting and Tracking the Economy are the tools of helping control. Even at that time it was not required. The reason, simply, no one was asking them. It happened after 9/11 when the world got more aware of money laundering. It was the event that refered lots of investments from the rest of the world to Dubai. The objective of the investors was one that Dubai was the most secure place in the world. This inflow was followed by the demand that the laws have to be firm and regulations shall protect any illegal activity or investment. Right from 2001 to 2005, Dubai was unstoppable in growth. They got whatever they wanted. The worst they have done in this period is not embedding contingency management tools to this progress.

The laws were not clear. The authorities were not established. Accounting standards and Auditing standards were not set. They realized all this in 2006 when they had the elephant standing before. The way they started making rules and regulations was itself a dilemma. The business community was not taken in consultation. It was all “Mudeer” (Government’s Manager) who had all the authority to define law and he could define in whatever way. The ambiguities in the system were well tracked by the investors in 2007 – 2008 but they were quite because their own investments were on stake. They wanted to get out simply. So they were also giving high note statements. The worst thing happened when the government started reversing their own pledges due to political factors. People witnessed it in the case of VISA LAWS. They now made six months multiple entry visas for property worth more than 1 million. People were not happy as this made many people out of this. It was also financing that hinder investors and end users to buy property in Dubai. In the end of 2008, U.A.E. banks gave a tough line to their Credit Managers on lending. The mortgage was difficult to acquire. This is one of the big factors in slowing down of realty purchases. But primary factor was the lack of confidence in investors on investment variables in Dubai. The most critical variables were ambiguity in laws and no hearing of investor’s problems.

All above statements are very brief features of happenings of Dubai Property from 2007. Dubai is still not over. They have the best infrastructure in the Middle East. Their ability to create a heaven in desert is visible. What they need to do is to simply changing their approach. The governance must be good. Thinking must be liberal. Target must be market protection. They just need to work out their procedures. The laws have to be clarified first and then the development process should being. Accounting and Auditing Standards have to be implemented so the investors can better assess the companies. There are many opportunities of businesses other than real estate in Dubai. They provide best Free Zones, their import and export facilities are up to the mark. So it is still not late for people to invest in Dubai. It is also necessary that the investor shouldl apply their investment and time in a relevant field. Many a times, those who can produce good mangoes try to produce apples.

If they go wrong, they blame the fertility of the land. In the end, it is simply all about greed, one day people will forget all this and if Dubai comes up with some thing new, there will be new show from the investors. It is just the beginning of "Dubai Talks" on BizOmer. So you will have many more factual writings on Dubai and other business destinations of the world. Be with BIZOMER.


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Mr. Omer

Mr. Omer [1982 born] started  his professional career as a commercial / investment banker after achieving Gold Medal in Finance at master level from University of Karachi in 2006.

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