Most of us have heard the Dubai story: small Gulf emirate not rich in oil decides to diversify its economy, executes it marvelously – and suddenly has the rug pulled out from under it due to its utilisation of debt in achieving growth. Against this backdrop, a lot of people have asked me about investing in property in Dubai. This article is an attempt to analyse in simple terms whether any directional bet can be taken.
According to the International Monetary Fund, the total debt of Dubai and its government related entities (GREs) stands at $109 billion, or around 125% of its GDP – comparable to the 150% debt-to-GDP ratio of Greece. According to the Bank of America, $15 billion of these loans are due or to be refinanced in 2012. The situation is not as dire as Greece though, as Abu Dhabi has above $600 billion in assets and is expected to come to the emirate’s rescue. To the lay investor, the resolution to Dubai’s problems may simply seem to mean Abu Dhabi forking out a chunk from its fat wallet, but the situation is slightly more complicated.
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