March 15, 2010

Dubai Offers Cash For (Real Estate) Clunkers

dubai-property-crashThe story of Dubai’s real estate market over the past eight years would make an exciting flip-book. A sleepy port town introduces freehold property rights for foreigners (May 2002) and- hang on to your hats- a buzzing metropolis is born. A glittery skyline comprised of office towers, hotels and cheap residential high-rises sprouts like mad for the next seven years, pushing the city’s boundaries ever-outward into the desert. Then credit crunch! Debt freeze! Awkward bailout from Abu Dhabi. Expats flee and property values are leveled, down at least 50% from their peak in 2008, maybe more.

Clearly Dubai Ruler Sheikh Mohammed bin Rashid Al Maktoum and his cabinet have some wreckage to pick through. So while government officials hold talks with creditors in London and try to stave off another strings-attached handout from Abu Dhabi, the Ruler has a new idea of how to raise cash. Let’s blow up the bubble:

Dubai government Monday introduced new laws that will allow locals to develop commercial and industrial land previously gifted to them by the sheikdom’s ruler.
The decree is designed to “revive the real estate and the commercial industry in the emirate,” according to a statement from the media office of Dubai’s ruler Sheik Mohammed bin Rashid Al Maktoum.
Under the new law, United Arab Emirates’ nationals will be given the right to own land gifted by the government and freely use the property without “previous constraints” provided they pay 50% of its assessed value for permission, the statement said.

via Dubai Reforms Property Laws Amid Real Estate Slump – WSJ.com.

Prior to 2002, the government technically owned all of Dubai. Local citizens (UAE nationals) were allowed to use and inhabit land on a “gifted-tenure” basis, meaning they could occupy it but with specific restrictions about what they could build or do with the property. Seeing as they got it for basically nothing, it seemed like an alright deal. After all, sacrificing freedom for handouts was pretty standard practice in the Gulf. But come 2002, foreigners and locals alike were able to buy 99-year leases- though foreigners’ purchases were restricted to certain areas, typically the big government-run developments. The result: a gold-rush for condo flippers the world over.

Now that the market’s collapsed and many of those flippers have failed or fled, the government’s trying to monetize some of that land it essentially gave away back before 2002:

Under the new law, United Arab Emirates’ nationals will be given the right to own land gifted by the government and freely use the property without “previous constraints” provided they pay 50% of its assessed value for permission, the statement said.

So that “free” plot of land you got last decade? Well, we’ll give you permission to actually use it if you pay up, so says the Ruler. It’s not the worst way to goose a stagnant economy- locals could get a bargain and the government gets easy, instant cash. Kind of like cash-for-clunkers or a three-figure stimulus check.  Three potential problems with this scheme:

  1. How many recession-pounded locals are dying to dip their toes into commercial real estate, let alone get financing to do so? To put it mildly, Dubai’s commercial property market seems a touch saturated at the moment.
  2. Who’s to say how much “50% of assessed value” actually is? Having valued dozens of Dubai properties for Forbes billionaire rankings, I can attest that this is a tricky and controversial exercise. Though a 50% market decline is the most commonly accepted stat, other analysts have pegged it as low as 20% and as high as 80%. Properties are worth whatever someone is willing to pay- which in many cases, is nothing.
  3. At most, this will provide a short-lived revenue bump to the strapped emirate. If Dubai is serious about rebuilding their treasury supplies, here’s a crazy idea: taxes. It won’t be popular but maybe that whole no-corporate-or-personal-income-taxes idea should best be viewed as a great marketing ploy. One whose offer has just expired.

To put Dubai’s conundrum in comparison, let’s once again compare the poor state to Abu Dhabi. The very same day Dubai announced their odd offer/desperate request, Abu Dhabi’s Ruler issued this smug announcement:

President His Highness Sheikh Khalifa bin Zayed Al Nahyan, has ordered distribution of 800 residential plots to the UAE nationals in Abu Dhabi, Al Ain and Western Region to ensure social and family stability.

Sheikh Khalifa’s gesture reflects his keenness to provide good living conditions for each citizen as per the higher national goals within the framework of communal solidarity and social stability.

via Khalifa orders distribution of 800 plots to UAE nationals.

That’s right- HE Al Nahyan is giving away land for free, just because he can. NB: the offer is only extended to residents in those specific regions. Sorry Dubai. In this regard as well, you are on your own.

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March 11, 2010

The Third World is a Bastion of Billionaires

Richest Guy in the World, Mexico's Carlos Slim

Richest Guy in the World, Mexico's Carlos Slim

Forbes Magazine is out with its annual round-up of the world’s super-rich and whaddya know, a surprising number of heavy-hitters can be found in that part of the planet we used to refer to as “the third world.” “Third” being a polite, vague way of saying “poor.” Today, that’s a dated term in more ways than one. Businessmen (yes they’re mostly men) from developing countries are, in investment-banker parlance, killing it:

U.S. billionaires still dominate the ranks–but their grip is slipping. Americans account for 40% of the world’s billionaires, down from 45% a year ago. The U.S. commands 38% of the collective $3.6 trillion net worth of the world’s richest, down from 44% a year ago.

Of the 97 new members of the list, only 16% are from the U.S. By contrast, Asia made big gains. The region added 104 moguls and now has just 14 fewer than Europe, thanks to several large public offerings and swelling stock markets.

via Bill Gates No Longer World’s Richest Man – Forbes.com.

Not only is Asia trouncing the US in wealth creation, but for the first time ever the loaded title of World’s Richest Person belongs to someone from a developing country. Carlos “Slim” Helu, a Mexican of Lebanese descent, is worth a staggering $53.5 billion, $500 million more than Bill Gates and $6.5 billion more than Warren Buffett. Ninety-seven new billionaires cropped up in places like Pakistan and Indonesia, China is now second to only the US in number of ten-digit fortunes and the number of Indian billionaires doubled.

One more nail,  you might say,  in the American Superpower’s coffin- at least the American Financial Superpower. Wall Street is aware: bankers are scrambling to get their talons in these developing countries far, far across the pond. The other night a banker acquaintance of mine was complaining about how sick he was of his trading job- his product line (credit default swaps) is falling out of vogue faster than Ed Hardy. He wants to join a new firm but no one is hiring in his shrinking segment. So, I ask, what area is growing? Emerging Markets, he says. Exploding. The new plastics.

Now I see why. In the past year, the S&P 500 has increased 37.26%. Not bad at all- but still peanuts compared to the scorchin’ performance of the major market indices of Russia, Argentina, Sri Lanka, Kazakhstan and Vietnam- just a handful of the 13 emerging markets that returned over 100% in the same period. Forbes’ Eastern European billionaire reporter Tatiana Serafin has a good analysis over on her blog of the region’s billionaire boom- this, after so many of Eastern bloc’s tycoons were on the brink of bankruptcy only last year.

As they say, go big or go home.

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March 10, 2010

Why Billionaires Matter

World's First Billionaire, John D. Rockefeller

World's First Billionaire, John D. Rockefeller

Forbes Magazine is out with its annual tally of all the world’s billionaires. The happy fat cats from Miami to Macau who are much, much, much richer than you. In case you needed to be reminded, you are not in possession of a ten-figure fortune, you don’t vacay on a private island and NetJets versus Flexjet is never a decision over which you have anguished.

In this shell-shocked economy, doesn’t a massive list celebrating capitalist giants- a list which has counted among its ranks its share of corporate raiders,  political villains and outright criminals- seem a little-un-PC, maybe crass? Maybe. But that doesn’t  mean it’s not pretty damn interesting. Yes I’m biased (I helped report the Middle Eastern tycoons and have for the past four years) but if there’s one thing hours of empire-valuing has taught me, it’s that these moneyed moguls are incredibly- you might say ominously- influential. Herewith, I present:

Five Reasons to Give a *$$$* about A Billionaires List:

1. It Makes Them Accountable

Publicity is a very powerful thing. Technically, the net worth of a private citizen is not really anyone’s business but if everyone always went about their own business, no journalism would get done. Ever. And someone with a personal fortune that’s equivalent to the GDP of some not-even-that-small countries (Bill Gates=Kenya) is not your average private citizen. Many are in charge of vast companies that employ hundreds of thousands of people. Some run your city, or even your country. And in that great American philanthropic tradition inspired in part by Andrew Carnegie, with great wealth comes great responsibility.

An example: in June 2006, the world’s second-richest man (at the time) announced plans to donate nearly all of his fortune- $31 billion- to billionaire buddy Bill Gates’ respected Gates Foundation. Gates, the world’s second-richest man, has expressed plans to do the same. And in March 2007, this year’s #1 richest person (typically #3 behind Gates and Buffett), announced exclusively to Forbes his plan to donate $10 billion to charity. Peer pressure, perhaps?

2. You Might Not be Aware of It, But They Control Your Life

In some regard, at least. To see what I mean, check out this illuminating story by my colleague Keren Blankfeld.  And that’s only touching on America’s richest- factor in all billionaires, all around the world and face it,  you’re a money puppet.

3. Some Fortunes Need Fact-Checking

Fine, so Allen Stanford is the one that got away. But for every Stanford there are dozens more shysters, self-dubbed “billionaires” who don’t pass muster with the Forbes researchers, such as Aussie blowhard Cliver Palmer. In this day and age when credit ratings are looking increasingly suspect and “mark-to-market” accounting is an ugly reality, a second opinion doesn’t hurt.

4. Some of These Folks: Pretty Inspirational

Take a browse through the bios and you’ll find some pretty incredible rags-to-riches stories. Micky Jagtiani, once a penniless whiskey-swilling cab driver, now a retail magnate worth $2.8 billion. Oprah Winfrey, a poor African-American girl from rural Mississippi is now…O.

A round-up of a few good Horatio Algers can be found here.

5. You Too Could be Very, Very Rich One Day

There’s always a chance, right? And when that day comes, you’ll want to brush up on your peers.

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March 10, 2010

Iran Hits An Ugly Record

Roxana Saberi, NPR reporter jailed for "spying"

Roxana Saberi, NPR reporter jailed for "spying"

My fellow blogger here at True/Slant, Neal Ungerleider put it best:

As piss-poor as the opportunities for journalism jobs are in the United States, it’s still better than the situation for Iranian journos.

via Iranian journalism market isn’t so easy – Neal Ungerleider – Falafel Mafia – True/Slant.

Neal was referring to Iran’s recent ban on three of the country’s publications for suspected support of reform. Today, the Committee to Protect Journalists brings us more troubling news: as of February, Iranian authorities are holding at least 52 reporters in prison, a third of all world’s jailed journalists and the most held by a single country (runners-up are China with 24 and Cuba with 22).

“Iran is entering a state of permanent media repression, a situation that is not only appalling but also untenable,” said CPJ Executive Director Joel Simon. “The Iranian government will eventually lose the war against information, but we are saddened every day that our colleagues are paying such a terrible price.”

via With 52 journalists in jail, Iran hits new, shameful record – Committee to Protect Journalists.

The article includes short bios of every journalist currently in prison and what’s striking- and particularly alarming- is that 47 of the 52 imprisoned journos were arrested in the past 13 months. A sudden, frightening crackdown.

To help, please consider signing this petition CPJ plans to send later this month to Ayatollah Sayed Ali Khameini. As nasty and frustrating as challenges like cratering ad rates, blowhard pundits, “infotainment” and Demand Media are for the news industry, it could be much worse.

On the state of Bahman Ahmadi Amouee, freelance contributor to reformist newspapers, imprisoned since June 19, 2009:

On January 5, Amouee was sentenced to 34 lashes, along with seven years and four months in prison. Amouee’s wife, journalist Zhila Bani-Yaghoub, told Rooz Online on February 21 that he shares a 115-square-foot (35-square-meter) cell with 40 other prisoners.

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March 9, 2010

Saudi Arabia's American Problem

wbsaudi_wideweb__430x335Really, who’s surprised?

According to Kuwaiti economist, Jassem Al-Mutwwa, Saudi families spend nearly twice their income on what you might call, stuff.

“Education, amusement and eating out account for more than 181 percent of a family income in Saudi Arabia,” said Al-Mutwwa who delivered a lecture on personal finance in Jeddah on Saturday.

Via Saudi families spend twice what they earn – Arab News.

A pretty astounding statistic when you consider that Americans- us, a people not known for thrift or restraint- spend about 18% of our pre-tax income on the same categories, according to the Department of Labor’s latest consumer expenditure survey.

I suspect the Saudi data is a little skewed- the article is short on details about how Al-Mutwwa conducted his research and what constitutes “family income” but it does illustrate a larger truth. Like much of the Gulf, Saudi a is a hyper-consumerist culture. Combine a tremendously wealthy government (which through subsidies, has provided many citizens with a good amount of disposable income), a hot climate, shopping malls galore, a young population inured to consumerism and you get a lot of frivolous shopping.

It’s a serious problem for a country long-dependent on one dwindling, non-renewable export for their power and livelihood. In the past two years, Saudi has embarked on a massively-ambitious plan to reinvent its economy and attract foreign investment by setting up six “Economic Cities,” all-inclusive industrial hubs designed to house major international companies, schools, ports and living quarters. While King Abdullah has embraced the plan as critical to Saudi’s future (he even named one in his honor) the recession has raised questions about the government’s ability to complete the grandiose project. Not only is financing for $35 billion real estate projects kind of tight these days but the Cities’ success hinges on participation by big-name multinationals like GE, Boeing, Cisco and the like.

And these big guys might be a little hesitant right now to jump into a long-term partnership with the Kingdom. After Dubai’s sudden default in November, another unexpected default last October by a major Kuwaiti bank and the mysterious implosions of two of Saudi’s richest families, investors are rightly leery about just how transparent the business climate is in the Gulf. Don’t expect them to be making the move anytime soon, says one Merrill Lynch analyst in a report last week:

“These projects rely more of private sector involvement than government spending. We believe that there are not enough incentives yet for the private sector to push forward these projects once the basic infrastructure is completed,” the report said.

via More incentives needed for Saudi economic cities – Construction & Industry – ArabianBusiness.com.

Long story short: Saudi officials have their work cut out for them, figuring out how to allow their citizens to continue living by the standards to which they’ve become accustomed. Seems they’re on to something good, but the recession-spooked private investors will be slow to fall in line. In the meantime, maybe the citizenry can meet the government halfway and spend less dough. Americans- or some of them- can relate.

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March 8, 2010

World's Newest Media Hub Has Everything but Freedom of the Press

Dubai_Press_Club_launches_new_training_program_for_UAE_journalistsIt’s no secret that media is an industry in dire need of a White Knight. Will it be the iPad? The sudden, improbable rebound of advertising rates? The demise of the internet? Right now, it seems the most successful (least bankrupt) traditional media companies are hanging in there thanks to a billionaire benefactor whose deep pockets are allowing a news organization to stomach losses most business owners couldn’t hack. Rupert Murdoch’s truthy-ish Fox News is helping prop up The Wall Street Journal. Mayor Michael Bloomberg’s nifty terminals finance his eponymous news organization, which now includes a TV network and BusinessWeek. And Carlos Slim’s telecom empire bought him a piece of the Grey Lady.

Now there’s another wave of billionaires here to invest in our flagging sector, a whole clan of ‘em. The Al Nahayans, the royal ruling family of Abu Dhabi are on a multi-billion dollar campaign to make the oil-flush city-state a hub of all things media. As the AP duly notes:

It has set up a company to bankroll Hollywood films, built an office park to house foreign news agencies, and spent billions to invest in microchips that power the electronic gadgets that increasingly serve as platforms for media consumption.

It is also partnering with established Western brands, including National Geographic and Comedy Central, to develop Arabic-language programming, and is splashing out on big-name concerts for eager audiences at home. Recent shows featured Rihanna, Aerosmith and Beyonce.

Via Abu Dhabi Pumps Oil Riches Into Media Projects – NYTimes.com.

Along with the art museums, the prestigious universities and the carbon-neutral city, the rush to build a media empire is part of the emirate’s grand plan to diversify its economy away from oil. It’s a move only a multi-billionaire could justify: they’re not concerned with returns or ad rates. For them, it’s a relatively cheap way to get a lot of attention, fast. I’d wager to guess that at least 50% of Americans have never heard of Abu Dhabi. A little Hollywoodization would change that in a hurry. Tomorrow, the government is hosting a summit for “media and entertainment elite” including Murdoch (who recently bought a stake in Saudi Arabia’s biggest media company and is moving some of Fox’s global offices to Abu Dhabi) and Google’s Eric Schmidt. The country’s new daily paper, The National, whose mission is to “reinforce Abu Dhabi’s status as a global economic center” has poached writers from The New York Times and The Wall Street Journal, luring them with (gasp) a salary and benefits.

Does all this mean a new lease on life for traditional media? It’s doubtful. The sheikhs’ billions,  exciting as it seems, is no panacea for what ails the industry. It’s a sexy way for the city to grab attention and court some bigwigs but as to the larger problem- how to monetize all this TV/news/music- it offers little.

More troubling, is the fact that this new global media hub is materializing in a country and region not known for its free press. Criticism of the royal family is verboten, reporting negative economic news is discouraged and a law aimed at liberalizing some of the constitution’s more draconian media restrictions has been in limbo for nearly a year. Would an influx of global media brands pressure the government into adopting freer media policies…or will media fall in line with what their financiers implicitly want?

The trickiness of the situation is embodied by an Op-Ed that ran last week in Dubai’s local (government-owned) paper the Gulf News, railing against the National Media Council (NMC), the UAE’s government body that oversees media:

Standards have declined such that newspapers carry a little news, advertisements and a few shallow words. They have also lost their role as a watchdog. The NMC and editors of newspapers ignore the fact that today’s reader has changed and does not look for official statements in newspapers, because he can turn to internet news sites and forums for the information he wants. However, the most critical issue is that the government has become much more aggressive with the media and its people. The list of banned subjects is growing, and there are more instructions not to publish certain stories. Furthermore, editors-in-chief are used to applying pressure on journalists, which has turned some of these editors into representatives of the government, practising vicious censorship of their own newspapers.

Via gulfnews : The ceiling of press freedom in UAE is falling

A grim assessment. The good news: that it was published at all.

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February 12, 2010

Dubai's Problems Solved*

oil_field_385x261Just as the latest debacle out of Dubai seemed to secure the world’s most picked-on Emirate’s status as Abu Dhabi’s pet poodle, comes this exciting news:

“I can confirm that oil has been discovered and expect production to start within a year,” Sheik Ahmed bin Saeed Al Maktoum, the chairman of government-owned Dubai Petroleum Establishment, or DPE, told Zawya Dow Jones, confirming local media reports earlier Thursday that a new offshore oil field had been discovered in the emirate.

Via 4thUPDATE: Dubai Discovers New Oil Field Amid Debt Woes – WSJ.com.

Wait! Is it too late to change the name of the Burj Khalifa back to Burj Dubai? Take Cirque du Soleil and the QE2 off the auction block? A substantial oil discovery would be a huge find for the deeply-indebted Dubai, whose puny oil reserves cough up merely an estimated 70,000 barrels daily- far less than the 2 million Abu Dhabi puts out every day.

Alas, Dubai’s dream-big mantra has once again bitten them in the ass.

Dubai’s newly discovered oil field is unlikely to generate the big cash needed to get the debt-ridden emirate out of the doldrums, analysts say, challenging the government’s claim that it could inject new life into its ailing economy.

AFP: New Dubai oil find a drop in the ocean of debt, say analysts.

Sorry Dubai, we’re all jaded. Definitely this analyst:

“My feeling is that this a political message aimed at trying to provide a more positive piece of news in an otherwise quite depressing outlook for Dubai, which is obviously struggling with its para-statal debts.”

Nor did investors see the initial announcement last Thursday as a rallying call. The Dubai Financial Market’s all-shares index has remained virtually flat.

But it would make for an interesting parlor game. What would Dubai do if it suddenly came into exorbitant oil wealth? Buy all of Las Vegas and transport it to Sheikh Zayed Road? Replicate Paris, to-scale, on a giant floating island? Give all their expat laborers a living wage?

My guess: Buy Abu Dhabi. And then shut them down.

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