This shows the degree of slowdown in Dubai’s massive property market. It further shows how highly leveraged many consumers are in Dubai and high degree of speculation in Dubai’s property market. In a blunt article by the New York Times, expatriates in Dubai are sharing their fears about not only their property ownership (Freehold property), but also their futures in the city-state. Many are fleeing due to these fears. Other observations on the ground is that traffic is lower on key thoroughfares, a rare sight in Dubai.
With the Eastern-style cultural dynamics and Western-style debt, analysts will be watching to see how the companies handle this global economic crisis. Will face-saving places like Dubai be more willing to repay debts and finance severance packages?
Even with face saving leaders, companies can only finance so much and so long without liquidity. That Youtube video stated how there is a growing liquidity problem from lower oil revenues. If there’s low credit and low liquidity, then the sheikh or owner has to sell equity or go into his life savings, which does not last long due to the fact that UAE has one of the world’s lowest savings rate. The equity option is also undesirable as the value of equity markets may fall due to several “hiccups” unfolding later this year. Many companies run and managed by face-saving leaders may not provide severance packages employees unless required by law.
According to Gulf Today, Private sector employees who voluntarily resign from their jobs between 1 and 3 years can receive one-third of the severance pay. Two-thirds of the severance pay may be offered to workers who have worked between 3 and 5 years. Full severance pay is given beyond five years. The period usually is for 14 days. If fired, employees can receive 21 days of remuneration for each additional year of service (maximum of two years’ remuneration).
One of the questions facing Dubai’s leaders is if the city-state will lose its Talent advantage, with an exodus of Indians and Westerners who run much of the economy and who are recently unable to continue their occupations there. Second, it appears that the government is unprepared to handle the crisis and is legally punishing those who lower Dubai’s brand globally.
Can Dubai come back quickly despite its extensive overbuilding and speculation? After all, it could take years for demand to organically rise again to high levels and, with the global recession, there may be minimal foreign capital flows there, two major factors that initially fueled its growth.