Having only ever passed through Dubai airport on previous occasions, I had always been a little curious about the desert city, so on a recent trip to London, I decided to take two days out to explore.
After going through the efficient immigration formalities, I boarded the fully airconditioned and driverless metro and made my way to my hotel in downtown Dubai. Visiting Dubai in July is not recommended due to the extremely hot temperatures, but I felt 44 degrees Celsius was worth trading off for bargain good hotel rates.
Brief overview of Dubai
Dubai is one of seven emirates forming the United Arab Emirates, a country which was founded in 1971, and which shares a border with Oman, Saudi Arabia, and directly adjacent to Iran, across the Persian Gulf. Abu Dhabi is the capital of the UAE.
Originally dependent on pearl exports, the industry collapsed in the late 1930s because of WW2 and the Japanese learning how to cultivate pearls.
Oil was first discovered in 1966, and exports began in 1969, thus beginning the transformation of Dubai into the prosperous emirate and city it is today. Dubai has focused on diversifying away from their dependence on oil, and today less than 5% of GDP is derived from oil, with GDP coming from other sectors such as trade, logistics, real estate, financial services, tourism and construction.
Development of Dubai
The old town of Dubai was built around the Dubai creek near Deira, where traders brought their wares from distant shores to trade. Along the river are old Arabian dwellings, with their vents on the top to enable cooling of the inside, the various souks (bazaars) including the textile, spice, and gold souks, and many dhows filled with goods for trade. Still to this day, much trade happens in this area, and import/export trade accounts for nearly 30% of GDP. Small dhows travel between Dubai and surrounding countries Iran, Pakistan, and India for trade, whilst larger boats go further afield.
The creek was dredged, and later extended right around to the sea again, essentially making much of downtown Dubai, including the Burj, and the business district into an island.
Further south along the beach is the Burj Al Arab, the famous 321m hotel, and across from the Burj is the Souk Madinat Jumeirah, which is a modern complex of hotels, restaurants and shops situated around a system of human built canals, that is meant to resemble an old Arabian citadel. The investment group I am involved with owns a chain of restaurants which has three brands of restaurants in this complex (Taverna, Americano and the MeatCo).
Continuing south down the shoreline on the Sheikh Zahed Road, and through the underwater tunnel, is the Palm Jumeirah, the palm shaped island built out of land reclaimed from the sea, and which contains numerous housing estates, hotels, shops and restaurants, including the famous Atlantis hotel and aquarium right on the tip of the palm. Across from Palm Jumeirah, on the mainland is the Dubai Mariner, another engineering feat which consists of 120,000 upscale residences, as well as lifestyle and leisure facilities.
Before Dubai changed the law to enable foreigners to own land in 2002, this strip of Dubai would have been an isolated patch of land, consisting of desert and sea, with a hotel every few miles. Twenty years later, it is now a metropolis of skyscrapers.
Foreign investment and free trade zones
In 2002 Dubai passed laws which enabled foreigners to own freehold property in Dubai. This was a major positive policy change for the country which has led to a rapid inflow of foreign capital and to develop the country into what it is today.
In addition, the creation of economic free zones such as Internet City, Media City, and Knowledge City has attracted foreign businesses to Dubai. The incentives these free zones offer include the ability for a foreigner to own 100% of a company’s shares rather than being obliged to partner with a local, full repatriation of capital and profits, and no taxes.
Low taxes
Another factor which has incentivised foreign capital to come to Dubai is the low taxes the jurisdiction offers. For many years there has been virtually no taxes, except on certain “sin” products such as alcohol which makes them prohibitively expensive (e.g. $14 beers). This seems to be changing though, as taxes are beginning to be introduced such as the 5% VAT and 9% corporate income tax. The lack of income taxes on individuals has made the country a drawcard to many expats looking to maximise their earnings free of taxes. Although it remains unclear what the effect of the introduction of taxes will have on Dubai vis a vis other low tax jurisdictions.
Stable exchange rates
The currency of Dubai is the Dirham, and it has been pegged to the USD at a rate of 3.67 since 1997. There are limited currency controls in the UAE, meaning foreigners can send money to Dubai and take it out easily. This is in contrasts to some African countries I have worked in, whereby it can be very difficult for foreign investors to take money out of the countries once they have invested. The freedom for funds to flow in and out has led foreigners to have confidence in the UAE monetary system, resulting in them investing huge amounts of money in the country.
Real Estate boom
The real estate boom that Dubai has undergone during the past two decades is most awe inspiring and remarkable. Buildings which would stand out in most cities in the world, such as the Emirates twin towers, which are 305m and 355m high respectively, simply look ordinary when compared with newer, higher buildings.
The Burj Dubai is possibly one of the most remarkable human-made structures I have come across, and symbolic of the Dubai real estate boom. At 828m high, it is the world’s tallest structure by a long way. The building was conceived in 2003, developed by Emaar Properties, the preeminent Emirati property developer, and designed by Chicago based architectural firm Skidmore, Owings & Merrill.
In total it took about 6 years to complete the building, finishing in 2009 at a cost of about $1.5 billion, though in today’s money would be over $2bn. The Burj breaks all the records: highest man-made structure, highest occupied floor in the world, highest outdoor observation deck, etc. The hotel includes some 280,000m2 of mixed-use area, including shops, residences and the world’s first Georgia Armani hotel. Being in the real estate industry myself, I’d love to have some insights into the returns this building has generated.
The lift only takes one minute to reach the 124th floor viewing platform, and your ears start to pop due to the pressure, like taking off in an aeroplane. The views are truly remarkable, with 360-degree views of the shoreline, downtown Dubai and the airport. The current ruler of Dubai, his highness Sheikh Mohammed bin Rashid Al Maktoum, says of the development of Dubai:
“The word impossible is not in the leaders’ dictionaries. No matter how big the challenges, strong faith, determination and resolve will overcome them.”
His highness Sheikh Mohammed bin Rashid Al Maktoum
The Dubai Mall is another remarkable construction feat, also developed by Emaar. With a 100ha footprint, over 1,200 shopping outlets, 4 storeys, and 100m annual visitors, this is the largest shopping centre in the world. Every evening they have the famous water fountain displays, where water and music dance in synchrony. Down the road is the Mall of Emirates, another large shopping centre with a sky slope, on which people can ski indoors, in a desert which has summer temperatures outside of over 40 degrees during the day.
Dubai as a safe haven
Dubai is like gold, being a safe haven in times of uncertainty. After the Russia-Ukraine war started, the city has seen huge amounts of funds flowing into the city as many Russians and Ukrainians have sought to find a source of security for their families and their money. This has coincided with a few years of high oil prices. As a result the city has boomed over the past 18 months, with real estate values and rents sky-rocketing, and most sectors of the economy doing very well. As a data point, a 2 bed, 3-bathroom apartment at Boulevard Point, a residential skyscraper sells for 4.2m dirhams, equivalent to USD 1.1m, whilst a 3 bed flat sells for 5.75m dirhams or USD1.6m.
We invested into the restaurant group in 2017, when the city was going through a bit of a recession caused by the slump in oil prices. Then COVID-19 hit and for a few months times were incredibly tough for the group. However, with government support, and easing of lockdowns, as well as Dubai playing host to the World Expo, the group have seen some incredible trading results in recent years.
The costs
Dubai is well known for its notoriously high costs of living. In some ways, the lack of income taxes paid are made up for in other ways. A handful of items and their costs, translated into USD are below:
- Pint of beer $14 (happy hour $10)
- Cappuccino – $6.50
- Pastry – $2.70
- Casual dining meal – $20
- Fine dining meal – $100 exc. Alcohol
- Ride up Burj Khalifa – $45
- Rent 2 bed apartment in Boulevard Point – $5,000 – $6,000 per month
Conclusion
My trip to Dubai was short, but incredibly insightful. The scale and pace of real estate development that has occurred in the city over the past twenty years is inspirational and mind-boggling. From my perspective, the success of Dubai can be attributed to the following
5 lessons from Dubai’s success
- Freedom for foreigners to buy land in certain zones has led to inward investment in real estate
- Lower taxes have encouraged investment, and expatriates to work in Dubai
- Strict law and order means peoples and companies rights and interests are protected
- Autocratic government means leaders can focus on long-term growth of the country without fearing the loss of an election
- Limited currency controls and a stable exchange has meant foreigners can easily invest or divest