Mohamed Ali Alabbar, Chairman of Dubai's Financial Advisory Council and Emaar Properties, believes the fall in property prices in the emirate will average 20 per cent. He said the Dubai Government was handling the real estate situation by studying projects that would be cancelled or postponed or were continuing and would take appropriate action.
In an interview with Al Khaleej daily, he stressed that important decisions had been taken by the authorities to inject liquidity, guarantee deposits and increase Dubai's budget to ensure the completion of all infrastructure projects.
He said government-owned companies in the business sector were operating in accordance with the same trade investment mechanisms that were used by companies all around the world. These included rescheduling a proportion of debt and postponing projects. He said Dubai's direct government debts were very limited and were being repaid at a time when other governments, such as the US, had high levels of debt that were increasing continually without any repayments being made. Alabbar said the handling of the impact of the crisis should be focused on the banking sector in order to facilitate financing for companies and investors, which would provide the necessary security. Because of this the provision of liquidity by the government was of paramount importance.
Do you expect property prices in Dubai to fall by 60 per cent as some experts are predicting?
I think the 60 per cent forecast is illogical. The rate of decrease will vary according to areas and the level of units. Some areas will see a price drop of 10 per cent and others will see 30 per cent. But in general I expect the percentage will be 20 per cent. Even if some units are sold at very low prices due to their owners' urgent need for liquidity, this will not be the actual level of prices in the market.
What is Dubai doing to tackle the economic crisis?
We are affected because we are part of the world. We have started to take measures to limit the effects of the crisis on our economy. We are making efforts to market the city and increase its performance in the fields of tourism and business. We are taking many steps, including the continuing expansion of Emirates airline. We worked with the Central Bank and federal authorities to pump in liquidity and guarantee deposits. This was not a normal reaction as the UAE was one of the first countries to adopt such measures. In addition, we are tackling the crisis through a confident and courageous budget approved by Dubai to ensure continuity in infrastructure projects. We are determined to continue preparing for the coming years which will see a return to growth. The government monitors the situation in the real estate sector and measures have been taken, including the fixing of rents in 2009.
We do not have taxes that can be reduced, as is the case in other countries. Landlords reaped the results of growth over many years and they understand the need to limit the increase in rents in the current year. In the real estate sector, we are following up projects and identifying ventures that are under construction, cancelled or delayed so we can take appropriate decisions. All observers know that Dubai has always taking courageous and innovative decisions.
We learned that from His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, through long years of work. Sheikh Mohammed's initiative to set up the consultative council to address the current situation comes on top of courageous measures that we have not seen in many other countries, because Dubai diagnosed the crisis and attempted to tackle it. We continue to work in this regard, but the media sometimes exaggerates when reporting the crisis. Despite this we understand the media's point of view. Of course problems affecting the whole world cannot be solved by a magic wand and many countries are involved in the crisis. In fact the situation in our country does not differ from the position in neighbouring countries, but seemingly we are always called on to take quick initiatives because we have accustomed everyone to our courage when taking decisions.
We are able to do that and we have a challenging spirit. We can face all problems courageously because current conditions require real ability. In the boom period, success was easier to achieve because the markets automatically provided the requirements for growth. We know some measures can be taken promptly while others take longer. Generally we are dedicating the year 2009 to tackling the problem. When I talked a few days ago about a five per cent increase in the number of people coming to Dubai over the past two months I received a lot of calls from businessmen who spoke about the difficult conditions. I mention to people what is actually happening. The growth still exists, but this does not mean current conditions are better than conditions in the past.
Previously, the number of people coming in went up to 14 per cent and the growth rate for the number of licences issued to businesses ranged between 40 and 50 per cent. We do not deny there is a reduction in the growth rate. But the most important thing is that growth is still happening at rates that are reasonable in the current situation, though this does not apply to all indexes.
The occupancy rates in hotels fell and that made us study the reasons for the fall. Are people going to three-star hotels? Has the pattern of incoming tourists changed? Is the largest percentage of tourists coming from Asia rather than Europe, which would require us to take some necessary steps? However, be sure that we deal with real figures.
Are there large financial commitments that the Dubai Government should repay in 2009?
The debts that should be repaid are limited. There is a debt that the government obtained and put on deposit and another $4 billion (Dh14.6bn) loan taken for the Dubai Electricity and Water Authority, which generates good profits. The remaining debts were taken for companies that invest in different business sectors. Our companies will deal with debt in the same way as any company in the world is dealing with debt in the current circumstances. Top car manufacturers are facing, difficulties, even Japanese and German companies. They announced falls in sales and suffered losses. They said they would repay part of their commitments to banks and reschedule the other part. Our companies will do the same because they borrowed to finance their businesses on a purely commercial basis. I do not understand why everyone considers this a natural thing for international companies but sees it as exceptional for our companies. Each company might reschedule some debts for many years and, generally, there is continual repayment of commitments. The strange thing is that even at the level of government debt I do not hear anybody questioning the amount of accumulated by the US Government. All we know is that these debts keep mounting to finance their current needs, including health insurance funds. Much of the US debt is not guaranteed, borrowers just take bonds. All our debt is guaranteed and most of it finances profitable projects. So what is the problem if some of it is rescheduled.
Have some projects been delayed?
It is natural that businessmen protect their companies by all means during the current economic situation. All the boards of directors I deal with around the world are delaying projects. Some projects are being reduced in size and others are going ahead according to plan. This applies also to our companies. Some projects could be delayed for six months and others for one year, while work on others continues.
Has Dubai taken loans from the Abu Dhabi Government?
I was asked about that before and I said we had not borrowed or sold any company or any part of a company. Also we have not ordered the sale of any of our assets because there is no need for that. Concerning our partnership with Abu Dhabi, it has been going for more than 10 years. During the period of economic growth we invited Abu Dhabi Government to be our partner in Ducab. The partnership with Abu Dhabi is necessary and useful. When they partnered us in Ducab our level of ownership of the company dropped but the value of the part we owned grew. In the field of aluminium we established a partnership with Abu Dhabi three years ago and that had nothing to do with the crisis. This is a natural thing that meets the wishes of UAE nationals. There are huge investments by Abu Dhabi in Dubai. If you looked at the past 10 years you would find that the biggest source of investment coming to Dubai was from Abu Dhabi.
Are there concerns among people in Dubai about laying employees off?
The concerns in that regard exist around the world. There has been mounting panic in the world since the stock markets collapsed. There are institutions in all countries that are obliged, during the current conditions, to make some employees redundant. The same thing applies to some companies in Dubai. At Emaar, 100 employees were laid off and I think we have finished, currently, the operation of sacking people, and the same might be said of other companies.
How long will the international crisis continue?
There has been growth in our region for many years. We have now reached a stage where we are witnessing some difficulties that require us to tighten our belts. We know how to manage economic issues during the current situation. The duration of the crisis will vary from one country to another. The US and Europe, including the UK, face a real dilemma. Our situation is better. For example, growth rates might fall to six per cent instead of the 14 per cent we saw during recent years. But we will keep achieving growth. Our banks are in a good position, though they might face some problems – but elsewhere in the Arab World there are banks facing bankruptcy. In addition, our governments have a greater ability to increase their budgets and are repaying their debts, while the debts of the US are on the rise. Certainly businessmen should change their view of future growth rates in the light of recent developments and the banks should be more careful. We should learn from the crisis and develop our working methods to deal efficiently with a period of belt-tightening.
I do not think governments in our region can quickly restore growth to the former levels. In fact, the high rates of growth created harmful effects such as inflation, and high prices put considerable pressure on those with low incomes. We should know how to deal with difficult times and the governments are tackling the current conditions. But the main problem we face currently is taking the right decisions regarding the banks, because they are the link that ensures the movement of the economy. In the business sector, we clearly see a shortage of financial resources. I do not call on the banks to give loans and ignore the current situation. But they should ease issues so that the companies can feel reassured, this would remove the state of panic. So it is important that the government provides the necessary financial resources for the banks.