Forbes Magazine
Rich But Fragile Gulf Markets
So it should be no surprise that the Gulf region became home to burgeoning property and stock markets as it looked like an easy one-way trade. But is it? The most important question is, of course, the future price of oil. When it almost reached $150 earlier this year, the futurists predicted $200 and then on to $300, but instead it fell below $100.
The rub is that the development of large, complicated and expensive property projects are built on assumptions of future prices, costs and revenues. And in the Gulf region the costs of construction are escalating in terms of both materials and labor. Double-digit inflation is the norm rather than the exception. Plus the rapid increase in real estate prices and overbuilt property markets will likely lead to a correction.
A Morgan Stanley (nyse: MS - news - people ) report focuses on Dubai and expects that the oversupply will hit the market in 2009, leading to a 10% decline in prices in 2010. I suspect that the decline will come much sooner and be considerably sharper, since the report mentions that "In Dubai, the Land Department has recorded a fourfold increase in land prices since 2000. Although this is driven in part by genuine demand, speculative investment has also contributed to the price rises, in our view."...
...Lower oil revenues, higher costs, overbuilt supply--it is not a pretty picture. And if property markets are in decline, is there any hope that stock markets might still stay firm? No way, since property and finance companies loom large in the region's exchanges....
In the past three months the MSCI Gulf index has dropped more than a fifth and is down 30% year to date. The Dubai Financial Market has been the worst performer in the region in the past three months, having given up nearly a third of its value. And foreign investors have been net sellers since the beginning of 2008, putting additional pressure on property prices and oil prices to shore up confidence in the market....
...Barring a strong rebound in oil prices or massive government support of the market, the direction of Gulf markets will mirror the region's property markets in a downward spiral.
http://www.forbes.com/finance/global/2008/1013/050.html
Now do you understand the validity of my earlier statement?
What you see is a construction boom with capital provided by oil, a state-run economy. Majority of what you see as "investment" and "development" is a result of this construction boom, that is the construction boom IS the economy and everything else is a product of it, including the need for migrant laborers and foreign investment.
Once the construction boom ceases, then the Arabs will realize what they have built is a house, with no foundation, unfurnished and bare from the inside.
Booms------->always end in------->Busts.
to them is all I can say..since I am no predictor of future events. 