Two sides of the Dubai boom

24 November 2007

The news that Dubai World is planning to merge two of its subsidiaries, Nakheel and Istithmar Real Estate, is hugely significant. At a stroke, the new company will become the largest real estate firm in the world, with projects worth a combined $52bn, making it far bigger than the other Dubai-based stalwart, Emaar Properties.

On the face of it, the move makes perfect sense. By consolidating the two firms, Dubai World should be able to take advantage of synergies between the two, and the merger will give Nakheel the international foothold it has long been seeking.

It would be wrong, however, to assume that combining Nakheel and Istithmar represents a new policy of consolidation among government-owned companies in Dubai.

Clear evidence of this is the establishment of the Meraas Investment Company. Set up to develop a large tract of land alongside Sheikh Zayed road, the new real estate firm is the latest in a long line of companies formed to oversee specific projects.

That it is concentrating on land that is already developed is equally significant. For years, it has been Dubai's policy to develop untouched land or, if none was available, to reclaim it from the sea.

Now the government is turning its attention to redeveloping older areas such as the low-rise, villa-dominated communities of Satwa and Al-Safa. This is almost certain to require some sort of compulsory evictions to make way for high-rise developments that will be able to make better use of the high land values found there.

While the Nakheel-Istithmar merger reflects the continuing dynamism of Dubai's property boom, the redevelopment of existing residential areas highlights the fact that the boom is becoming an uncomfortable experience for some.

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