Softening real estate prices have created a new funding challenge
Dubais economy managed to pull off the impossible in 2011 when its property market began to rebound.
Over the following three years, real estate prices continued to rise encouraging developers to launch new projects. As prices soften in early 2015, the market is understandably getting the jitters. The last time prices started to fall in 2008, it resulted in 50 per cent being wiped off the value of homes and billions of dollars of projects were put on hold.
The correction in 2015 is far less severe than the drop endured in 2008 and 2009, and so far there has been little evidence of projects slowing down, let alone being put on hold.
To reinforce Dubais ongoing commitment to projects, the emirates ruler Sheikh Mohammed bin Rashid al-Maktoum has been busy approving new projects such as a new metro line connecting to the World Expo site in Jebel Ali along with a variety of new schemes planned by real estate developers Nakheel and Wasl.
These projects join the schemes that sealed his approval in 2014, including the expansion of Al-Maktoum International airport, which is the worlds largest airport construction programme.
Such a large volume of projects inevitably leads to questions on funding, and with the debt it still carries from the past, Dubai can only fund a fraction of these projects directly. To fill the void, it will have to find other sources of funding, and with an underperforming real estate market and depressed oil prices underwhelming its neighbours, this will be a considerable challenge.
Some alternatives, notably export credit guarantees, are being explored, but Dubai will have to do a lot more if it is to deliver all the projects it has launched. For a city that thrives on achieving the seemingly impossible, it is the perfect challenge.
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