Surviving Dubai's Real Estate Crash: Discussing Failures, Coping Strategies, and Moving Forward - Arabic Knowledge@Wharton

Measuring as long as a double-decker bus and twice as wide, a model landscape envisioning Abu Dhabi's future was on display at a recent real estate conference there. Surrounded by large screens and a second level for those seeking a birds-eye view, the plastic mega-miniature city, dubbed Abu Dhabi 2030, was a sprawling dream of modern urban design, complete with futuristic towers and bridges, geometric housing clusters and expansive greenways. Seemingly self-aware of what was on display, the landscape lit up specific structures on cue as a British-accented narrative and throbbing music enveloped the scene. Under dimmed lights, the soon to open Ferrari World theme park, shaped like a giant starfish, glowed an opaque blue. Conference attendees expressed their admiration.

But a short walk away, inside a sparsely populated conference room, the proposed skyline for Abu Dhabi, capital of the United Arab Emirates, was being debated by another set of attendees, many of them veteran real estate professionals. And there was little support for the scale or scope of the master plan. Instead, there was agreement such a skyline could not be completed in 20 years, and that the human and capital cost needed to achieve such a transformation would be enormous, even for the oil-rich Emirate. Kamil Homsi, president of New York-based investment firm Global Realty Capital, repeatedly demanded that his colleagues answer his questions about the plan: What was its purpose and where would all the people needed to populate such a city come from? "Is it all about towers?" Homsi asked. "Surely the current economic climate would give us a reality check -- but it seems no lessons have been learned in the last two years." Mustering one of the few defenses for the UAE's ambitious plan for its capital was Mohammed El-Hage, director of investment banking for Abu Dhabi-based Unifund Capital. "This vision is meant to inspire people," El-Hage said. "If we can land even halfway there, it will be one hell of a development."

The doubts expressed were a far cry from just two years ago, when price increases in the UAE's real estate market were on a six-year run, and real estate conferences like these sometimes had investors selling off-plan paper properties for tidy profits only minutes after purchase. But the unease is symptomatic of the current state of the UAE's real estate market, which has seen billions of dollars worth of projects put on hold or cancelled since the global economic downturn began, and real estate prices in Dubai dropping by as much as 50%. The city state is attempting to correct the issues that contributed to the real estate bubble, enacting laws that would reduce property speculation and, just recently, provide landlords the right to choose their own property management firms.