Dubai Races to Attract People and Capital for Long-Term Growth

Dubai, fuelled by a swift economic rebound following the COVID-19 pandemic, is aggressively working to attract people and capital to drive its long-term growth. The glitzy Gulf city-state is aiming to avoid the past debt crises that hindered its global ambitions.

Dubai is adopting a revamped economic model that historically focused on property investment, tourism, and foreign capital inflows. The property market is once again booming, aided by Russian demand amid the conflict in Ukraine and more relaxed residency rules. Analysts believe that this time around, there are better safeguards in place to prevent a repeat of the problems that plagued Dubai after the 2008 global credit crunch.

With iconic landmarks such as the world's tallest tower and man-made islands, Dubai has set ambitious goals for itself. Its 10-year economic plan, known as D33, aims to double the size of the economy and establish Dubai as one of the top four global financial centers within a decade. Additionally, Dubai plans to expand its public beaches from 21 km to 105 km by 2040 and revive the abandoned Palm Jebel Ali island, which was left neglected after the 2008 financial crisis.

Tourist numbers in 2023 have almost returned to the levels of 2019, and Dubai ranked as the world's fourth busiest ultra-prime property market last year, with 219 home sales exceeding $10 million.

However, the surge in property prices and demand for ultra-high-end properties is raising concerns about the potential for excesses. In 2008, Dubai was severely impacted by the global financial crisis, leading to a capital flight, property price collapse, and struggles for highly leveraged government-related entities (GREs) to repay debts. Abu Dhabi eventually provided a $20 billion lifeline to Dubai, which is expected to be extended for a third time.

Nasser Al Shaikh, former head of Dubai's finance department, warns that there is a risk of Dubai becoming too expensive to live in. He suggests that if private developers cannot meet the demand for mid-income properties, the government and GREs should play a bigger role in ensuring affordable prices.

Dubai's population has been steadily growing, reaching over 3.55 million in 2022, a 2.1% increase from the previous year. S&P Global estimates that the population will surpass 4 million by 2026.

To mitigate the risks, Dubai has taken measures to manage its debt. It established a Debt Management Office in 2022, repaid or restructured outstanding debts, and announced plans to list government stakes in 10 companies to raise capital and deepen financial markets. The city has already listed four of those companies.

Justin Alexander, director at Khalij Economics and Gulf analyst at GlobalSource Partners, believes that Dubai has learned from previous cycles and hopes that the lessons learned will help mitigate the risk of major borrowing and unrealistic expectations for real estate sales.

Despite concerns about transparency, particularly regarding GREs, Dubai continues to attract foreign direct investment. In 2022, it attracted an estimated $12.8 billion in foreign direct investment capital, outperforming Saudi Arabia's $8 billion. However, the UAE's placement on the "grey list" of the Financial Action Task Force (FATF) in 2022 raises concerns about reduced capital inflows and investor confidence.

Despite the challenges, Dubai remains resilient, according to Philippe Zuber, CEO of Kerzner International. He commends Dubai for keeping its borders open and businesses strong during the COVID-19 pandemic. Kerzner, partially owned by Dubai's sovereign wealth fund, recently opened the "ultra-luxury" Atlantis the Royal resort on Palm Jumeirah island, with accommodations such as the Royal Mansion Penthouse, which costs $100,000 per night.

By fLEXI tEAM