Economy of Dubai - Construction

Construction

Since 2000, Dubai's municipality has initiated a plethora of construction phases and plans across the entire city of Dubai, predominantly in the Mina Seyahi area, located further from Jumeirah, towards Jebel Ali. Many areas of Dubai are dominated by the large number of construction cranes. Construction in Dubai and the UAE in general is a much faster process than in any Western country. This is partly because Dubai construction companies employ many low-wage labourers from the Asian subcontinent for up to 12 hours a day, six or seven days a week.

One of the main reasons for the boom in construction in Dubai is its drive to diversify the economy. The Dubai government does not want to depend on its oil reserves, which are largely believed to become exhausted by 2010 (Which has actually happened) and, as such, has diversified its economy to attract revenues in the form of expanding commercial and corporate activity. Tourism is also being promoted at a staggering rate with the construction of Dubailand and other projects that include the making of mammoth shopping malls, theme parks, resorts, stadiums and various other tourist attractions.

Another reason for the construction boom is the recent reversal of a law in 2002 that allows non-nationals of the UAE to own property (not land) in Dubai (albeit freehold and 99-year leases are actually sold to people with ownership still remaining with private companies). The larger of the property tycoons are Nakheel Properties and Emaar Properties. Rents have skyrocketed with the recent inflow of professionals and companies from around the world who are attracted by Dubai's no-tax benefits although rises have recently been capped to 7% per annum up to 2007 under a directive from Mohammed bin Rashid Al Maktoum. Legislation in this area is still developing as the property market for foreigners is relatively new.

An article in the Wall Street Journal in October 2009 reported that Dubai's economy, heavily dependent on real estate where prices have fallen 50% in a year, has been badly hit by the global financial crisis, unlike its wealthier neighboring emirate, Abu Dhabi. Dubai has $50 billion of debt coming due in the next three years, according to Standard & Poors. But its total debts are estimated to exceed $80 billion.

In another article in October 2009, Reuters reported that one in four homes is vacant in Dubai and a quarter of office space lies empty due to oversupply, and additional supply coming onto the market will continue to put pressure on prices, Colliers International said on Wednesday. The property services firm said in a report the emirate will have 340,000 residential units by the end of 2009, with another 34,300 expected to come online in the next two years. Meanwhile, leasable commercial space is expected to double to six million square metres by 2011, Colliers said. “The survey indicates a market beset with falling demand and oversupply evidenced through increasing vacancy levels and falling take up rates”, it said.