Will Dubai Trigger a World Commercial Real Estate Bust? Public Welfare for Gulf Merchant Classes..........
“A debt default by the state-owned Dubai World has caused investors to sell off shares in Asian banks and raised fears of renewed financial turmoil. Stocks from Tokyo to Mumbai reacted badly on Friday to news of lenders' exposure in the firms that built artificial island housing developments in the Gulf emirate. Banks in Asia and Europe were quick to distance themselves from Dubai, which emerged from obscurity to invest in financial institutions like Standard Chartered and which lured fund managers with the promise of a tax-free lifestyle…..…..” Aljazeera
Dubai has been the biggest real estate bust so far. Will it trigger the other real estate shoe to fall? With banks scrambling to distance or cover themselves, will commercial real estate catch up with residential? The impact on Persian Gulf real estate is not clear yet. It will not be for some time, given the severe lack of financial transparency in the Gulf region. It is highly unlikely that most Gulf companies, and wealthy people, did not succumb to the allure of the promise of Dubai. And then there are the Gulf banks, many of whom will either remain silent or brazenly deny Dubai losses, for a while. Some will claim that they are not “realized” losses, but with commercial defaults mounting, what is the difference?
Time maybe near for the rulers of the Gulf to cough up more of their peoples’ petroleum revenues, again, to support the lifestyles of their tujjar, the merchant classes, the same speculating plutocrats. This has become an entitlement, a sort of public welfare, for the merchant classes: they take risks, they lose, they cry foul, and the oligarchs use public money to rescue them. Of course, the fact that the plutocrats control public institutions in these countries helps make the decision easy. I have seen it happen before, several times.
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mhg
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