Building and Development in Dubai

The Jumeirah Emirates Towers (along with Burj Khalifa and Burj al Arab - the famous soaring Jumeirah resort hotel in the Gulf) are the symbols of Dubai and along with Emirates Palace, they are the symbols of the UAE and to some extent the emerging states of what is known as the GCC (Gulf Cooperating Council). Almost every GCC country (except Oman) is trying in one way or another to replicate the power these buildings suggest in moving towards a modern future and in overcoming the desert. Oman an ancient country that once stretched from Pakistan to Zanzibar, prizes its desert architecture and low scale, almost whitewashed or sand washed, buildings.

Across from the Jumeirah Emirates Towers on Sheikh Zayed Road, there is a building that is designed to look like a circuit board. The reason for this and much odder designs and shapes for office buildings is that throughout the region and India as well, office buildings are more often developed for speculative investors in a flipping scheme than tenants.

This investment structure means each developer is competing with others to attract buyers for his floors. That's why so often Dubai buildings end up with wholly impractical designs, such as a turning office building, to set themselves apart from others, but without thought to practical value to end users. Further, the floor by floor sales of these buildings means no unified building management or leasing.

The capital used to build most speculative buildings, both office and residential, is 100% debt in the form of deposits. The risk of this to the buyer is that the developer has little at risk and the buyer has all the risk. Further, there has been no clear law defining their rights or the developer's obligations. This mess of a system was very, very fragile and waiting for any market factor to topple it.

That's what happened in 2008-2009 as interest rates increased slightly and loans for the buyers continuing deposit obligations, or the next buyer to flip sell to became scarce. As financing dried slightly the whole market withered and collapsed.

As the real estate economy collapsed, it meant the construction industry, and investment capital flows shut down precipitating a full financial disaster for heavily over extended Dubai, which relied heavily on these sectors (along with ports and tourism trade) for its economic life.