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An Amazing Sight to See

The ever evolving emirate of Dubai is altering its landscape once again. According to an Associated Press article (See: http://finance.yahoo.com/news/Dubai-opens-halfmilehigh-apf-1107781099.html?x=0), the world’s tallest skyscraper was formally opened on Monday. In typical sensational Dubai style, the building was presented amid a spectacular showering of 10,000 fireworks. The structure is an astounding 2717 feet high and boasts lavish apartments, high-end office spaces and a Giorgio Armani-designed hotel. Resembling a sort of space shuttle, this monstrous steel and glass construction required 1.5 billion dollars to complete. Once financially gainful, Dubai has become deeply in debt. Even amid all of this apparent opulence, there are financial difficulties.

And the Neighbors come to the Rescue

The tower itself, once known as Burj Dubai (or Dubai Tower) has now been named Burj Khalifa in reference to the leader of neighboring emirate Abu Dhabi. Sheik Khalifa Bin Zayed Al Nahyan has come to the aid of Dubai in its financial crisis. The oil-rich Abu Dhabi has a great deal of money to spare and has contributed billions in recent months, to help with Dubai’s financial predicament. In addition to being designed in a luxurious manner, the tower had additional costs related to its astonishing size. As explained on the UK site, The First Post, the 192 concrete piles that make up the foundation of the building had to be sunk 150 feet into sandstone bedrock. A series of airlocks were also required to hold back the cold air flowing down from the top of the tower, which could otherwise develop into a forceful wind.

Is it Even Safe?

At more than 1000 feet higher than the next tallest building, Taiwan’s Taipei 101, there are bound to be concerns voiced over the new structure’s safety. Developers of the tower insist that it is very safe, due in part to its reinforced concrete structure. Also included every 25 to 30 floors are refuge floors which have separate air supplies and enhanced fire resistance to offer occupants added protection in case of emergency.

Is the Cost Worth it?

Even outside of the cost of Burj Khalifa, Dubai has been battling some serious financial woes. The property market has taken a plunge and government owned investment company, Dubai World has fallen into serious debt. The good news is that most of the apartments, 1044 in total, have been sold thus far. The office space remains a struggle as it has yet to be claimed.

The Idea Behind it All

It has been suggested that Dubai undertook such a large scale project to revive confidence in its strength, power and influence, but many seem to see the venture as ostentatious and unnecessary. Perhaps all of the attention and speculation surrounding the intent of the tower is exactly what this area needs now though. After all, it is tough to go back at this point. Dubai is probably better off making the most of the renewed interest in the area with all of its extravagant and unique structures. After all it has been said that there is no such thing as bad publicity, and that may just be the case in this instance. Dubai will have to wait and hope

Some expatriates in Dubai who lose work will be able to repay their personal loans, but not all. (Photo: dubaiphotostore.blogspot.com)

My profile states that I had been working as a sales executive in different countries. The currently troubled emirate of Dubai was the country that was my home for 14 years. Those were the boom time years. Real Estate projects that are currently under pressure were the ones that were still on the drawing boards at that time. Life for me was easier. I had a good employer paying me monthly wages of $1, 650. That in turn gave me access to a bank account and credit facilities. I could also get personal loans from the bank I dealt, with just a letter from my employer.

Reasons for Taking a Loan in Dubai

As mentioned earlier, I had everything going for me in Dubai. I had good wages with perks that included a car and a furnished home. In reality that meant I only had to spend on food and any luxuries that I wanted. However, I decided to apply for a personal loan just because I was eligible. My aim in doing so was to transfer the money I could raise back to my country as savings. I approached the bank where I had my account and discussed the issue with them. Since I had no debts of any kind in the country, the bank agreed to advance a sum of $6, 000 within a couple of days. All that they wanted was proof about the length of my service and a letter from my employer, which stated that my end of service benefits would be transferred to the bank if I quit my position.

I was Happy When I Got the Money

My joy knew no bounds when I laid my hands on the money. $6,000 in Dubai translated to 285,000 in Indian currency at that time, and I could transfer the entire sum to my country within minutes. That done, I started paying off the loan in monthly installments of $250 each and still had enough money left for me. I was happy and so was the bank.

Trouble Came in 2002, but I Was Covered

Constant travel and stress on the job left me with high blood pressure and unable to work. I decided to quit from my position and return back to my own country. I still had part of the loan to settle and that amounted to $1,750. My end of service benefits were far in excess of what I owed and were transferred to my account by my employer. I was able to settle the loan and still leave the country with enough money in my hands.

What if the Benefits Hadn’t Been Enough?

Looking at the news flowing out of the country today, I wonder whether a similar situation exists now. The projects that were on the drawing boards then are all in different stages of completion. But the government has no money to complete them. Employees are being laid off and I am sure that many of them have personal loans taken from the banks. For every person who is comfortable and able to pay off the loan, there will be many more that are likely to default. How are the banks going to manage all the bad debts that are waiting to mount? The situation looks grim at the moment and is likely to hit other parts of the world as well. It certainly looks that we are headed towards another recession if a solution is not found soon.

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Dubai sports some of the most striking Real Estate in the world, but that sector and banks are facing serious trouble. (Photo: flickr.com)

Dubai World, the state-run owners of Nakheel (the Real Estate arm of the Dubai Government) is reported to be defaulting on a $59 billion loan. This loan was used to finance numerous projects involved in construction in and around the city of Dubai. Did the financial wizards of the country fail to visualize the oncoming crises? The writing was on the wall ever since the global crises began. Is it just Dubai World that will be facing the music? From information coming out of the country, it looks like banks that have advanced personal loans to individuals working in the country will face immense losses as well.

Dubai’s Demographics

Dubai is one of the seven emirates in a country known as the United Arab Emirates, with Abu Dhabi being the capital. Each of the emirates has been ruled by a particular family for generations. For example, the presidency of the country is hereditary to the emirate of Abu Dhabi. Similarly, the prime minister is always chosen from Dubai. The other emirates are also represented in the supreme council. The population of the country stands at approximately two million. Nearly 50 percent of the population consists of expatriates who are in the country working on the numerous projects being carried out. Oil and gas are the major contributors to the economy. However, Dubai has diverted from its traditional and known sources of income to become a popular tourist destination. It has invested heavily in infrastructure that attracts tourists and is also a tax haven.

Bank Problems Began Here

All projects carried out by Dubai World and Nakheel is located in the city of Dubai. It is therefore natural to have a better part of the workforce in the same city as well. Most of this workforce comes from the lower segments of the projects, with no access to bank accounts or any credit facilities. Only about 25 percent of the workforce has access to such facilities. These are the people who will have taken personal loans and be using credit cards. In the event of downsizing during the current global recession, the company employing such people has only to transfer their end of service benefits to their accounts. For people who have taken personal loans from the banks, the money is automatically adjusted against the loans. The laid off personnel have 30 days to leave the country, which in all cases is stringently imposed.

But here’s a big problem: If the loans are not paid in full, the employee just gets out of the country, leaving the bank to bear the cost of the balance.

A Big Problem for Banks

Having advanced the personal loans to the expatriates based on their length of service and a letter from the employer – and stipulating that all wages will be transferred to their accounts – the banks are in no position to initiate recoveries of any kind from the borrower. The borrowers are free to catch the first available flight out of the country and out of the reach of the banks. Local banks in such cases will be hit by a growing number of bad debts on their balance sheets. This problem is far bigger than the $59 billion that is being spoken about, and there is no solution currently in sight.

Apply for Personal Loans HERE!