The Glitz Factor

Whereas in many countries massive construction projects often get tangled up in parliament or meet resistance from local protest groups, Dubai's lack of such practices makes the emirate highly attractive to many international developers.



The Dubai government's intention to build a thriving, knowledge-based upper class economy also suits most residents just fine too.



Nowhere is this more apparent than in the real estate sector. Dubai is in the midst of a massive building boom, and the majority of those projects are geared towards an upper class buyer. Large real estate players, like Emaar, Nakheel and Dubai Properties, are frantically throwing up luxury high rises and residences.



"You can't do cheap housing on reclaimed land," says Sultan bin Sulayem, chairman of Nakheel, speaking about his company's massive land reclamation projects in the Palms, the Waterfront and World islands. To buy an island in the World development - without house, electricity, water or sewage infrastructure - will cost the savvy buyer anywhere between $9m to $40m.



Meanwhile, although it won't cost tens of millions of dollars for most homes on the Palms, it will cost millions. This project is unabashedly being marketed as the 8th wonder of the world, already placing it way out of the league of the casual buyer. High price tags and exclusivity are the goals, and so far there have been plenty of takers.



A few of the rich and famous have been wooed by Dubai's glitz. David Beckham and Michael Owen, along with a whole list of other English football players, have already reportedly signed contracts for houses on Palm Jumeirah.



The Jumeirah Beach Residence, not to be outdone by its land reclaiming counterparts, will boast a whopping 40 residential and multi-use towers, allowing it to lay claim to the title of largest single-phase development ever attempted. But its location on prime beach real estate - a quickly disappearing commodity in Dubai - means that this is meant for moneyed clientele as well.



At the same time, while Dubai is building luxury permanent residences with fervour, it also is tilting the scale towards on the high-class side of tourism. There are no rugged bungalows on Dubai's coastline, as in South-east Asia, unless they are in the shadow of a 300-room five-star hotel.



Indeed, Dubai is now the land of lavish hotels. All the big brands have one or more hotels, and few of them skimp on amenities. At least 34-five star hotels are planned in the coming years, and many of them are following the template of the real estate developments - building cannels, desert spas and themed resorts that blend traditional architecture and modern opulence.



The most recognisable face of Dubai's tourism industry is the Burj al-Arab. The "world's first seven-star hotel" boasts 202 suites, gold leafing measured in square metres, personal butlers and a fleet of Rolls Royces at its guests' service.



So what is being built for the middle income resident or tourist? Not much. A few developments, like International City, were geared to a more modest income earner, but these have been seized by speculators, who analysts say have pushed the price out of the reach of the average home buyer. Two- and three-star hotels exist, but Dubai is no hurry to put up more of them.



This is bad news for those who aren't running companies or who are independently wealthy. Dubai residents have seen their rents go up nearly 35% in the last year - with some residents reporting that their landlords have demanded as much as a 60% increase. Bloomberg reported on August 31 that rents are now higher in Dubai than in Washington DC.



One result is that many of the low-wage expatriate workers from the Indian subcontinent and South-east Asia can no longer afford to live in Dubai and have moved to cheaper accommodation in Sharjah. Even middle-income families have started to consider moving up the road to the cheaper nearby emirate.



For years, Dubai residents and visitors have enjoyed low costs and the emirate's tax-free status. Its placement as a major hub in shipping, air and general logistics means goods from all over the world can be imported cheaply. Yet, in the midst of the building boom, prices are creeping higher, forcing people to dig deeper into their disposable income to cushion the inflation.



Protests will quickly be raised if these costs continue their upward trend. If Dubai no longer becomes a luxury/value proposition then it is going to have a hard time keeping its villas rented and hotel rooms occupied. For now people seem to have enough disposable income to handle the prices rises, but as soon as too much of the population gets priced out, Dubai might have to rethink its obsession with only the high-end consumer.