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The 2008 Financial Crisis of Dubai

2008 Financial Crisis of Dubai

Khawla Al Ali

Meera Al Matrooshi

  • Research Question
  • Type of Research
  • Interviewees
  • Introduction: The Global Financial Crisis
  • The Case of Dubai
  • RERA
  • Financial Crisis in Dubai
  • Regulations working during the crisis
  • The change in regulations after the crisis
  • Current situation of real estate market
  • Hypothesis
  • Conclusion

The Financial Crisis in Dubai

Regulations

Situation of the real estate market during the crisis

Hypothesis

  • The Importance of regulations

  • Why Dubai needs regulations?

  • Establishing either new regulations or changing the existing ones
  • 4th quarter of 2008

  • First financial crisis to hit Dubai

  • Stock and financial market crashed

  • Declining consumer confidence

  • Increase in expatriate population

  • Hesitant investments

  • The off-plan sale dilemma
  • Period of oversupply

  • Problems with employee's salaries

  • Stopped projects

  • The need for regulations

Type of hypothesis: Causal

  • Established in 2007 under Dubai Land Department

  • Central controller of real estate market

  • Purpose to maintain regulation in Dubai

  • Regarding: license of real estate, off-plan sales, advertismenet of real estate, project evaluation matters, and owner association

Conclusion

Comparison: Dubai & Las Vegas

Financial crises serve as a wake-up call and reality check for economies.

  • Financial Crisis played a benefiting role in influencing the real estate market of Dubai

  • Departments of Dubai such as : RERA, Dubai Manucipality, Banks, Executive Council working together

  • Demonstrated the economic stability and powers of Dubai in real estate market

  • Abudhabi & Dubai

  • The period of changing regulations

  • The main focus was on the security and safety of the real estate market

Situation during the crisis

Off-plan sale:

  • A project plan that has not yet been built
  • The selling of a project befoe its completion to buyers

The Case of Dubai

  • Orchid Residence
  • Dorna Tower
  • Rotating Residence
  • Abraj Towers
  • Fortune Serene
  • Spark
  • Escan Tower
  • Tower 88
  • Platinium 2
  • Jasmine Garden
  • Elegant Tower
  • The Signet
  • Dolce Vitta
  • The K Hotel
  • The Plaza
  • Zero Five Zero
  • Burj Al Alam

Source: http://gulfnews.com/business/economy/diversification-key-to-uae-s-growth-1.672717

  • Jumeirah Gardens City
  • Mohammad Bin Rashid Gardens
  • Nakheel Harbour & Tower
  • Mudon Development
  • Culture Village
  • Palm Deira
  • Alsalam City
  • Al Burj Tower
  • Universal City
  • Emerlad Gateway
  • Aqua Dunya
  • Dolphin City
  • Nad Al Sheba Race Course
  • Al Falah
  • Falcon City of Wonders
  • Dubailand
  • Palm Deirah
  • Rapid and exceptional

development

  • Value of some properties reduced up to 64%

  • More than 75$ Billion (USD) in construction projects were canceled or suspended

  • Decline in construction activities from 14.35% in 2007 to almost Zero in 2008

  • Branching out in markets:

wholesale trade, re- export, business services

Source: http://www.imaginefuture.net/iabg/userfiles/Dubai%20-%20Breakdown%20of%20Dubai%20GDP.jpg

"There is always a silver lining in any crisis, it was a very bad crisis that killed everything but I would say that it was a relief, a breathing area to improve the rules, regulations and the services". (Alrafia, Author Interview, Dubai Manucipality, March 12,2015)

  • 47% of the total property boom in the Gulf in 2011
  • Dubai’s hotel count at the end of the first quarter of 2012 rested at 577

Source: (IMF - World Economic , 2009)

  • Foreign investmet attraction due to economic potential, security, ease of business

Research Question

Introduction

Why did the Financial Crisis lead to a regulatory change in Dubai's real estate sector?

Jumeirah Gardens City

Mohammad Bin Rashid Gardens

Nakheel Harbour & Tower

Mudon Development

Culture Village

Palm Deira

Alsalam City

Al Burj Tower

Universal City

Emerlad Gateway

Aqua Dunya

Dolphin City

Nad Al Sheba Race Course

Al Falah

Falcon City of Wonders

Dubailand

Palm Deirah

  • Orchid Residence
  • Dorna Tower
  • Rotating Residence
  • Abraj Towers
  • Fortune Serene
  • Spark
  • Escan Tower
  • Tower 88
  • Platinium 2
  • Jasmine Garden
  • Elegant Tower
  • The Signet
  • Dolce Vitta
  • The K Hotel
  • The Plaza
  • Zero Five Zero
  • Burj Al Alam
  • What is real estate?

Property consisting of buildings and land

  • What is regulation?

Rules ordered and maintained by an authority

Answer:

Questions?

The financial crisis lead to a regulatory change in Dubai's real estate sector because it served as a wake-up call and a reality check where the city rethought its position.

Interviewees

Engineer Marwan Bin Ghulaita

CEO of Real Estate Regulatory Authority (RERA).

Engineer Abdullah AlRafia

Dubai Municipality's assistant director-general for engineering & planning.

Video

References

Fixed market

Back on track

Continued projects and investments

The Global Financial Crisis

Regulation #1

Type of research

Housing bubble

Beginning of crisis

High property prices

Bankruptcy

Amended regulations and policies

Explanatory

Analytical question

Law No.(13) of 2007 : Changing the process of getting a title deed from 2% to 4%.

2013

2007

2014

2008

2009

Research Design

Cross-sectional

Period of oversupply

Investments

Economic boom

Around the world and hits Dubai

Before

After

“Many banks which are specialized in real estate sector gave a lot of loans to hundreds of thousands of citizens with limited income, ignoring the risk” (Al-Sukker, 2010, p.12).

Stopped projects

Stopped investments

  • In 2009 : Increasing the fee to 4%

  • What is a title deed?

  • In 2007 : The fee was 2%

  • 2% is a low amount

  • Government lost huge amount of money

Ripple Effects

  • Getting a Pre-title deed

  • Control the reselling of lands

Current Situation of Real Estate market in Dubai

Regulation #2

Regulation #3

Law No.(8) of 2007 : Establishing the Escrow Account.

Regulation #4

Executive Council Resolution No.(6) of 2010 : Providing principles in which the buyer or investor could claim for termination of contract.

Executive Council Resolution No.(46) of 2010 : Concerning Green Building Regulations & Specifications for Buildings in the Emirate of Dubai.

After

Before

Dubai Going Green

Options of canceling the project:

  • Only the appointed contractors can withdraw and use money from the account for the project
  • Debt
  • Laid-off worker
  • Unemployment

34 (2008) to 42.1 (2010)

  • High cost of living
  • Indian, Moroccan and Malaysian Investors
  • Win-win Siuation

  • Third party complete payment based on the progress of construction
  • One of the most positive effects of the Financial Crisis on Dubai

  • Main Focus on sustainable construction, water resources, energy resources, alternative energy

  • 79 new regulations came into force

  • Directly linked to getting the building certificate and completing the construction

1- No sell of plan.

  • Tash'heel
  • Tamkeen

2- There's a sell of plan with money in Escrow Account

3- There's sell of plan with no money in Escrow Account

  • Third party confirm receiving the project and the Escrow account is closed
  • What is Escrow Account?

  • What was the intent to establish the trust account?

  • Escrow Account wasn't controlled

  • One of the reasons why many projects stopped

  • Risk of completing of project

  • Complain goes to court

  • The activities of developers are regulated more efficiently

  • CEO of RERA : "Don't worry, your money is secured, and the project will be delivered to you safely"
  • Regulations change can be discussed as efficient laws to solve all the questionable tasks related to the real estate market.

  • Economic environment in Dubai is characterized by stable growth today

  • Extreme focus on completing the projects

  • The economy quickly recovered, expanding by 1.6% in 2010, 4.9% in 2011

  • Property sales in Dubai scored 54% in 2013 compared with 32% in the first quarter of 2012

  • Real estate is considered a strong pillar of Dubai's economy today

Source: Escrow Angel Transaction Guardian, 2014.

Source : Dubai Land Department , (DLD , 2013)

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