The lure of Dubai property market

Published November 9, 2009

PAKISTANIS are reported to be the third biggest player in Dubai property market. But many believe they will be the single largest investor if about 60 per cent of the British nationals — Kashmiris of Pakistan origin — buying property there, are included. No wonder, Pakistan is a cash-strapped state of an elite.

The phenomenon points to a huge flight of capital. Before moving on to study the mode of money transfers by the elite and its opportunity cost to the country, it would be apt to first look a little deeper into what is happening in Dubai.

Over the first half of the current year, Pakistanis were next to the UAE and the UK nationals who contracted to buy new property in Dubai. According to figures reported in Dubai press in the fourth week of October, 3,290 units were registered in names of the UAE nationals followed by 3,243 by the UK, 2,510 by Pakistanis and 2,450 by Indians.

This investment in Dubai's real estate was found to be surprisingly remarkable because Pakistanis suffered heavily in Ajman debacle in 2007-08. The Ajman property bubble burst in 2008 wiped out investment worth billions of dollars. There was no dependable data available but figures quoted in Dubai were astonishing.

A high profile businessman who moved to Dubai recently said, the loss to Pakistanis in Ajman was estimated to run into billions of dollars. The figure quoted was $4-5 billion.

During a four-day stay this writer discovered that what and why of the happenings in the property sector in Ajman could make an interesting study--- particularly how oil rich states ignore unethical practices of domestic companies as long as the locals do not suffer.

An attempt was made in this piece to explain the trend and fathom its implications for the domestic economy. There was hardly any response from the government and relevant officers, particularly that of Pakistan Embassy in Dubai on the issue. They seem to have no clue of what was going on or its implications.

Some Pakistani residents in Dubai commenting on identities of Pakistanis active in property deals told Dawn that it would be naïve to develop a pattern on the basis of scant, misleading and insufficient facts and figures.

The interaction and multiple interviews with temporary residents of Pakistani origin and some business people stationed in the branch offices of their family enterprises indicated that Karachiites and Mirpuris dominate the group of property owners in Dubai.

Some people insisted that politicians, bureaucrats and professionals particularly bankers and those in security services own villas and flats in Dubai. Now that the rentals are too low many have left these units with caretakers.

“It is next to impossible to identify property owners as politicians, bureaucrats and businessmen are cautious and prefer to buy property in the name of a company registered in such places like Virgin Islands or some distant relatives”, a lady married to a well-placed UAE national said.

“Yes, a lot of money from Pakistan moved here during 2006 and 2007 high growth period, when capital and property markets were booming in Pakistan, credit was cheap and traders were manipulating the market to reap rich dividends. People made so much and so quick that they did not know what to do with loads of easy money. With the West getting inhospitable, a sizable percentage of new money arrived in Dubai. A lot of it evaporated into thin air when Dubai property and capital market crashed. No one who came in this decade and invested in Dubai escaped unhurt”, recalled a businessman. He however believed that the flow of funds lost momentum as the economy of the country took a dip in 2008. “The money has to be generated first if it has to be invested. From what I know for a fact that honeymoon is over in Pakistan for the propertied class. When the very survival of business is at stake, you do not go around with bags full of money on your back seeking investment overseas, particularly in a global recession”, he argued.

“There might be some genuine buyers in Dubai housing sector weary of economic and political instability in Pakistan making arrangements for a temporary refuge for their families if things get out of control in the country but the numbers quoted by Dubai press look exaggerated to me”, argued a textile tycoon with a branch of his family settled in Dubai.

“I believe these numbers include earlier investment downgraded by renowned real estate companies after 2008 meltdown”, another businessman who sounded bitter and had probably burnt his hands in property fiasco said. “After the market crash some reputable housing firms offered new contracts against payments made earlier, in a new comparatively smaller project”, he explained.

The business tycoon maintained that those who transferred assets informally to Dubai had little choice but to accept whatever was being offered to minimise their losses.

“The data published has treated renegotiated deals with past investors as new transfers”, he said. “It suits Dubai to merge downgraded contract and new ones to give impression of rebounding property market to attract investors back”, he concluded.

“No Pakistani investor has put in his money either on our advice or reported us about his intentions of doing that. People were coming and making hay while the sun was shinning. No body can give you exact statistics about the amount of investment made by Pakistanis. However, according to estimates in the market AED 7-8 billion pertain to the Pakistani investors”, responded Pakistani Consulate in Dubai through an e-mail.

“I have no idea. This is not my domain. You should be asking the finance ministry about the capital flight or may be the State Bank. Ours is a free economy where capital is allowed to move both ways. I doubt if any body would be able to tell”, Suleman Ghani, federal secretary, ministry of commerce told this writer over phone from Islamabad.

A businessman of Karachi said that money transfer was not an issue. There are scores of money changers working without regular offices offering services at a reasonable cost. “Many bankers also help you out if you want to transfer money to Dubai”, he said.

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