DUBAI'S CITYSCAPE 2008 - (SUR)REAL ESTATE AMID FINANCIAL

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 000391

NEA/ARP FOR MASILKO, SIPDIS

E.O. 12958: DECL: 10/22/2018
TAGS: PINV ECON EFIN PGOV ETRD AE
SUBJECT: DUBAI'S CITYSCAPE 2008 - (SUR)REAL ESTATE AMID FINANCIAL
CHAOS

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CLASSIFIED BY: Paul Sutphin, Consul General, U.S. Consulate
General Dubai, State.
REASON: 1.4 (b),(d)




1. (C) Summary: Even as world financial markets tumbled and
investor fears over an economic slide grew, bold (and costly)
new projects for expanding the "Dubai dream" to even greater
heights were unveiled at the seventh annual "Cityscape Dubai"
exhibition October 6-9, the commercial to commercial real estate
trade show that is one of the regions largest commercial
exhibitions. Despite developer's big plans and big glitz,
including unveiling of the new Dubai government developer
Meraas' USD 350 billion "Jumeirah Gardens" project, there was a
constant undercurrent of concerned discussion of the real state
of Dubai (and regional) real estate, including market regarding
demand, capacity and liquidity - and a distinct underlying
uncertainty about how much is too much for the world's biggest
construction site to bear, given the drying up of readily
available commercial capital. End Summary.

(Sur)real Estate Dreams

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2. (SBU) Over 1,000 exhibitors and 60,000 participants (up 27
percent over 2007) converged on Dubai's convention center to
hear the details and view spectacular, often room-sized models
of some of the world's most ambitious construction and
development projects. The Dubai government seeks each year to
use the huge exhibition, which includes a smattering of
prominent U.S. architects, property developers, and consulting
firms, to build confidence and interest in the local and
regional commercial real estate market. (Comment: This premise
lent the glitzy event a particularly surreal quality this year,
given the current global financial crisis, with developers,
agents, and others in the industry working hard to focus
attention on the expensive miniature renditions of their grand
plans on display, rather than the cash-short world outside of
the exhibit hall. End Comment.)

Impact Inevitable, Despite Brave Faces

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3. (C) Unsurprisingly, the developers with whom we spoke all
expressed some degree of optimism about the local real estate
market, noting that in times of trouble, real property is the
one of the most reliable investments. Despite this, most
developers admitted drops in liquidity levels; regional income
from external investments; contractions in foreign capital
coming in to the market; and tightened local lending practices
(in the face of several unfolding local financial scandals)
would undoubtedly have a significant, negative impact on many of
the projects on display. (Note: Of course, each developer had
a thorough explanation of why his or her particular venture was
immune to this constellation of problems.) Contacts in the
banking sector have said to us that developer debt servicing is
already a problem, particularly for "second tier" or newer
developers, and that they - even more than local bankers or
construction companies - will bear the initial brunt of the
crisis. Reportedly (we have not been able to confirm) UK banks
HSBC and Barclays, both significant players in the local market,
have halted new lending for real estate projects for the rest of
the year. Other sources have said project cancellations are on
the increase; one claimed at least nine medium-sized,
multi-building projects had been cancelled already.

Dubai Government Entities - Steady on, at least for now

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4. (C) Those companies largely linked to or owned by the Dubai
government, including Nakheel, EMAAR, Dubai Properties, Sama
Dubai and newcomer Meraas, all unveiled new projects ranging
from massive to considerably large, with a peculiar air of
indifference to the financial pressures facing their less
connected colleagues. (Comment: and despite widespread rumors
that many of these companies were having significant cash-flow
problems and that Dubai has sought financing assistance from
cash-rich Abu Dhabi as a result. End Comment.) Nakheel - part
of the Dubai World family of companies and the developer of
Dubai's Palm island projects - unveiled its massive model of the
planned "tallest building in the world" at over one kilometer
(the model alone was some 25 feet tall) - overtopping EMAAR's 70
percent-complete Burj Dubai, currently the tallest structure in
the world, by some 200 meters. New wholly Dubai
government-owned developer Meraas (which has grown from 3 to 135
employees over the last year) unveiled a massive model of
"Jumeirah Garden City" - a project between the northern end of

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Dubai's Sheikh Zayed Road and the Gulf coast. The project,
should it come to pass, will involve razing and reconstructing
of much of Dubai's lower-middle class section of Satwa (already
underway, to a degree),and will include waterfront land
extensions, a landmark triple 150 story skyscraper (Dubai One)
with a canal flowing between the buildings, and a range of other
new buildings and facilities set to cost USD 350 billion.


5. (C) Like "Jumeirah Garden City," and continuing a trend of
recent years, many of the most ambitious projects are set for
Dubai's existing city center, effectively wiping out existing
residential and commercial districts to make way for higher-end
housing, shopping, and business. Coupled with this "out with
the old, in with new" approach, however, was a, for the first
time, prominent focus on (a degree of ) environmental
sustainability and the re-introduction of traditional
architecture and design -- particularly adjacent to Dubai's
traditional center, The Creek -- to strengthen Dubai's
indigenous culture that has largely been eroded by massive
skyscrapers and planned communities.


6. (C) Comment: While at Cityscape, we spoke with analysts from
real estate consultancy firms Colliers International and Jones
Lang LaSalle. Both were, understandably, more willing to
concede the negative medium and longer term impact of pressures
on Dubai's real estate market than their property development
counterparts. However, despite a consensus that a significant
slowdown has begun -- and was, in fact, overdue in Dubai's
overheated market -- they gave little credence to speculation
that a full-fledged real estate collapse is in the offing. Both
expect to release updated reports on Dubai's real estate market
outlook in the coming weeks; we hope the reports will provide a
balanced analysis of the questions surrounding one of Dubai's
most important business sectors. We will continue to follow
closely the outlook for Dubai's overvalued real estate market
and, more importantly, the impact of a necessary correction on
its already struggling banks and financial sector. End Comment.
SUTPHIN