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Real estate prices in Dubai quadrupled over the past 5 years as foreigners rushed in to take advantage of the secondary flows into the Las Vegas of the MidEast. Unlike many of its neighbors, Dubai could not rely on a steady flow of oil and so resorted to heavy marketing, tourism investment and serious amounts of leverage. Now with tourism down due to depressed oil prices, a supremely bearish consumer outlook, and the prospect of a severely negative hit to the current account, they expect us to believe that the worst is over?
- First, they need to deliver.
- Second, they need real estate prices to come back to a reasonable level.
- Third, they need demand to return (which implies oil needs to get back up to OPEC-smile-inducing levels). The first hasn't seemed to have happened yet, and the second two are not even close to reasonable levels.
There are a lot of parallels to draw with the situation we face in the US and hopefully they are paying attention to what's going on here. Perversely, the only saving grace for Dubai may be the corruption and cronyism that has long plagued the MidEast. In short, someone needs to foot the bill in a time like this; in the US, it's the taxpayer and in Dubai, there's a high likelihood that it will be shared in some distribution among many of the ruling royal families.