The Dubai Bubble

As far as I recollect, I think, I first visited Dubai in 1994. I still very clearly remember the place a friend who was working in an MNC there, arranged for me to stay. A studio apartment, in the centre of Bur Dubai. I also remember very clearly that the boundary of city ended where it starts today! I also remember taking long walks across the city – from one end to another.

Since 1994 I have been to Dubai several times each year. I have seen it expand and evolve all these years, complimented its leadership but have always wondered what was the business model of Dubai.

Have also looked at buying residential property in Dubai past several years but was put off each time by the unrealistic prices that have prevailed there all these years. I was often given a 24-48 hour deadline by brokers to say yes to a property deal as there were buyers waiting with ready cash! I refused and re-iterated that one doesn’t buy even potatoes or tomatoes without touching them, how could I buy a property by just seeing some casual and unauthenticated photographs?

All this while, contrary to my expectations Dubai property prices kept rising and my friends there kept telling me how much their net worth has multiplied in the process.

I also have had issues regarding setting up business in Dubai including in its much hyped free-zones. I somehow always felt that Dubai was an over-hyped place creating in the process architectural landmarks, man made islands, super luxury resorts, a world class airlines and infrastructure – a transit hub.  The only cheap things being gas and Indian food.

As it appears now, Dubai has debts in excess of its GDP and the rationale being given is that the value of underlying assets is many times more than the external debt. In the last two-three months, having given a specific budget and location preference for a property and having even responded to specific listings on a popular real estate portal, I have yet to get a real offer. So how logical is the value of the underlying assets still remains a big question and when for much lesser budgets better deals are available in the US and UK, why Dubai?

Part 2:Of auditors, analysts and rating agencies

Captain Sally, hero of the US Airways plane that landed in the Hudson River, told Barak Obama in a telephonic conversation that he and his crew were just doing their job.

Obama replied to that saying “If everybody did their job ……. we’d be in pretty good shape.”

If only all these auditors, analysts and rating agencies would also listen to this!

Its all about doing your job the right way and we don’t need a Sally or Obama to tell us this.

Of auditors, analysts and rating agencies

Whether it was Enron, Worldcom and now Lehman, Madoff  in the US,  Hyundai Motor in South Korea, Livedoor in Japan, Parmalat in Italy or now Satyam Computers in India – someone, somewhere failed in their duties to protect investors who lost their monies and employees that lost their jobs.

Am not even touching the aspect of governance, transparency, ethics and the roles of CEOs/CFOs here.

The Enron scandal even led to the collapse of its auditors Arthur Andersen. SEC settlement with two Arthur Andersen partners in case of Worldcom was also much debated. Last year PwC had a $225 million class-action case settlement with investors of Tyco International. There have been several other small audit fraud lawsuit settlements. Does it just stop here?

Auditors, analysts and rating agencies are all directly and indirectly supposed to be working to protect the interests of shareholders and lenders of a company. Respective accountabilities and punishments for defaults have to be in place and no one who betrays this trust should go scot-free.

Relevant apex institutions need to take an urgent look at their reporting and disclosures norms.