Video: Dubai is hot

By Mike Hegedus Special Features Correspondent
CNBC
updated 6/13/2006 8:09:27 PM ET 2006-06-14T00:09:27

Dubai — the most explosive economy on the planet — is about the size of Rhode Island but has the fiscal appetite the size of North America.

You've probably seen pictures, read stories, but you haven't really 'seen' Dubai until you've seen the Burj Al-Arab, a 321-meter tall luxury hotel with 202 duplex suites of pure opulence on the Persian Gulf, acknowledged by jet setters as the world’s only seven-star hotel. Or the Palm Jumeirah Development that is large enough to be seen from the International Space Station. It was built by dredging from the world's largest salt water port and will soon support 32 luxury hotels, villas, apartment complexes and about 70,000 people. These are two very impressive sites, but they are old news in the new Dubai.

Dubai, one of the seven United Arab Emirates on the tip of the Saudi Arabian Peninsula, is a moderate Muslim country that in the last five years has sprouted buildings like towering stalks from magic beans.

“There were two buildings when I moved here in August of 2004, and that is no lie. Those two buildings and nothing else existed,” said Mark Chapleski, managing director of Troon Golf, the Arizona-based world leader in luxury golf development, management and marketing. The company expanded its global operations to include new offices in Dubai in 2004.

Nearly 20 percent of the world's supply of construction cranes works day and night, round the clock, seven days a week on hundreds of billions of dollars worth of projects.

“It's human nature. We want to top ourselves. We want to come up with that next big thing,” said Fatollah Shahen of Capital Partners, a company that specializes in acquisition and development of innovative real estate assets.

Plans are afoot to build two more developments similar to the Palm Jumeirah and the Burg Dubai will soon be the world's tallest building in the center of a complex that will include the world's largest shopping mall.

“You know it's incredible. When you come in here, you see an incredible amount of cranes, you see vibrancy, you see energy. I'd say it's like the gold rush,” said Allen Liebman, President of Kerzner International, a company that develops and operates luxury resorts.

Beat the heat
And if it gets a little hot in the 114 degree heat, you can head to Ski Dubai, a half-mile run connected to a shopping mall that will just have to do until they build a whole ski village and mountain indoors — which they are.

But if you just want to live sports, there is no place like Dubai Sports City, a $3 billion project. Four years from now this lonely piece of sand will house five sports stadiums, an 18-hole golf course, apartment buildings and villas. About 70 percent of it is already sold.

“Dubai Sports City is a 50 million square foot metropolis built on sports as a viewership, sports as participation, sports as education, sports as well being, sports as a lifestyle. It's a city within a city,” said U. Balasubramaniam, CEO of Dubai Sports City.

“The one thing you have to give Dubai specifically credit for is they deliver on the promises. The idea that they'll have the tallest tower, the three largest malls in the world, they'll have the largest hotel in the world with 6,500 rooms. No, they're going to deliver against it. As long as the security stays the same, the people will come,” said Lou Scotto, President of American Business Council, a nonprofit association that promotes the development of commerce and investment between the United States and Dubai.

The foundation for all of this is of course oil: a commodity that Dubai will soon effectively run out of as any kind of real revenue producer. Today it amounts to about 6 percent of the country's income. So 15 years ago, the then-Sheik from the ruling House of Maktoum decided he had to have a plan. He created a tax-free tourist and business haven along the traditional silk trading route and the modern Dubai was born.

A decade of infrastructure expansion has led to an explosion of major construction, particularly on the tourism and hospitality side over the last five years. The early investors were all local, like Emar Properties and Dubai Holdings. But now most major international brands have smelled money in the water. Atlantis, Kerzner International’s next $1.5 billion investment is being built here.

“We're going to open up in Dubai with 1,500 rooms, we' re going to employ 4,500 people from more than 30 different nationalities and I think creating that uniqueness in the Middle East is going be a big draw for them to say, 'I wanna see Dubai, we want to see Atlantis,’” said Kerzner's Liebman.

Plenty of people are already seeing Dubai. The core trade is regional with visitors from other Arab countries, but roughly 30 percent of visitors are from Great Britain. The European Union has long been a hot market for the Middle East, and now the Russians are coming too. The goal: 15 million visitors a year by 2010.

The market that's opening up on the business side is the Middle East. Eighty percent of Fortune 500 companies have at least some presence in Dubai.

“They're not here for Dubai. Dubai is not big enough for them. They're here for the whole of the Middle East. They've chosen Dubai to be the regional center for them because they feel comfortable to be here — laws, regulations, family atmosphere, infrastructure, airport and obviously zero taxes,” Husam Hourani of Dubai Development lawyer.

'Slave' labor concerns
Since nothing is perfect, not even in a place that plans to build its own Eiffel Tower, only bigger, there are concerns over what some have called 'slave' labor. Of the 1.7 million permanent residents only 500,000 or so are native Emirates, the rest laborers contracted from the sub-Asian continent — Pakistan, India, Sri Lanka — and work for a reported $200 a month. Once that work force makes it into the UAE moving them around is a major issue and expense.

"At the peak we estimate something like 30,000 workers on the job, if all goes as it should. This again is a huge logistics issue getting them in and out of the site,” said Steve Blackburn, project manager for Dubai Sports City.

There are also concerns over exactly what passes in and out of the port. Particularly on the traditional dhows: Drugs? Terrorists? But these are not questions you hear often by the poolside or in any of Dubai's clubs. Life at those places is good, a vacation of sorts. The real elephant or camel in the room is: will the boom last?

Can continued double-digit economic growth fueled by construction, real estate speculation and tourism continue? So far this year real estate mortgage transactions are more than $2 billion with the government issuing $4 billion worth of bonds on the international market starting this month.

“It’s hard to say when it's topped. We're definitely in the early stages. What we see is the initial growth of the region. Dubai initiated it, now it's spreading out to the different countries,” said Shahen of Capital Partners.

In the Persian Gulf what's happening here is called the “Dubai Experiment.” It's got more going on than a belly dancers stomach ... but so far ... it's still shakin'.

© 2012 CNBC, Inc. All Rights Reserved

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 5.03%
$30K home equity loan FICO 5.68%
$75K home equity loan FICO 4.87%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.42%
Cash Back Cards 17.94%
17.94%
Rewards Cards 17.15%
17.15%
Source: Bankrate.com