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Money Gone Dry in Dubai: 3 Lessons in Hindsight

by Minority Fortune

Poor Dubai. Its fantasy world has officially come to a crashing halt. The ball dropped when the city-state asked to delay the payment of $60 billion debt owed by six months. Years ago, no one batted an eyelid as the ambitious development firms planned their maddening and ostentatious endeavors, from an underwater hotel to a revolving skyscraper to artificially placed islands. It attracted foreign investors from around the world who were lured in by the projected profits. Then at the blink of an eye, Dubai’s money had dried up.

Due to plummeting real estate prices and overspending in development, Dubai has found itself broke like California. Ironically, Dubai imprisons debtors. Yet, they desperately seek reprieve from their debt holders. Furthermore, it turns out that this disaster has been a long time coming. The Smashing Telly reported almost nine months ago on the fallout, stating that regular individuals behind in debt were abandoning the place for fear of imprisonment:

People are literally fleeing this place, to date leaving 3000 cars stranded at the airport with keys still in the ignition. And the reason for this is that if you default on your Dubai mortgage, you can end up in a debtors prison.

When all else fails, it’s time to beg. Yahoo News reports that Dubai is currently in negotiations with Abu Dhabi, its oil-rich neighbor. However, no one is sure of the outcome. Abu Dhabi is in no rush to bail its neighbor out. It has purchased a small portion of the debt and is combing through the financial sheets before it makes any further moves. We can’t say that we blame them.

Dubai gets a grade F for financial mismanagement. However, Dubai is experiencing its first financial and developmental boom. Let’s hope that they learn and recover from this real estate bubble. Meanwhile, we can take a few lessons away from this calamity:

3 Lessons to Learn from Dubai

1.    Prepare for the worst: Dubai kept building and spending as if money would continue to pour in forever. They knew no boundaries and set forth no budgets. It was a disaster waiting to happen. They should have had a contingency plan in place to avoid the big fallout.
2.    Don’t buy the hype: Dubai was determined to become the Las Vegas of the Middle East. As a matter of fact, it went beyond the scale of Las Vegas and worked feverously to make its imprint on the world. Once the word got out, investors and developers ran in fleets to Dubai further saturating the market. Instead of keeping a limitation, Dubai seemed to green light every single preposterous plan than was cooked up. They should have had a limitation for the amount of real estate developed at a given period.
3.    Cut the fat: Now that the bubble has burst, Dubai has to comb through its development plans and decide which plans simply cannot continue. Now is not the time for excess. They must scale their plans down to a more manageable budget.

*Image courtesy of B-C Images.
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