Dubai is famous for its over ambitious builders & their projects. Everyone in middle east still consider Dubai as model and racing with others to overtake Dubai. Dubai is the most vain and resource wasting places ever built by man. More incredibly we are being asked to believe this place built on sand is not the result of wasting oil money. Lots of big housing/commercial projects in Bahrain & Abu Dhabi etc are still under development to emulate Palm Jumairah in their own way which has already become epitome of Dubai crisis.
Dubai crisis started from 'Realty' bubble which started to bust after unrealistic prices across the board and without thinking about the sustainability of prices, demand and supply. Every Tom, Harry and Dick (btw gulf has in abundance) was trying to become another Donald Trump and people got sucked in the name of owning a house. $40K worth of house was sold around a $200 K and people went on to buy despite beyond their reach. Their logic- Today’s $200 K house would get a value of $1200 K within 5 years. People started to think an asset would always appreciate than thinking about the real value. Realtors spent a lot of money in unproductive things to justify the prices.
Banks started to give loans to real estate companies without assessing the real value. Their aim is to mint millions in interests. But these banks have forgotten to assess real value of realtors. Banks started to concentrate on variety of activities other than banking. They ventured in Forex, and derivatives which no one understands in the world. People went on buying homes with multiple EMIs without thinking about their financial stability & sustainability of the plan.
Greed is the only reason for this crisis. Every product and service was priced artificially and companies have been started overnight and it looted money from public. “Overnight millionaire” was the motto for most of the entrepreneur.
Companies went on to stretch beyond their capabilities and core competencies. They took too much leverage. If you don’t think big, you’re dumb. Every company becomes dumb by over expanding in new businesses that are not their core competence. They employed thousands of people and borrowed through various innovative instruments which would be subscribed by a genius called private equity.
Take ex. of India. Whole India ran at leverage and domestic growth story. If Pantaloon enters in retail business (Big Bazar), why we should wait was the question asked by Birla group and they acquired some retail companies and started MORE which is now creating more problems for Birla group. Stock broking is another business in which everyone from Kashmir to Kanyakumari started to capture their share in India. Insurance is another. Likewise everyone started everything and they went on to demolish brands and made every service as a commodity.
Everything has been created based on domestic growth theory which has been misunderstood by corporate managers who work in air-conditioned room with their tailor made PowerPoint presentations as designed in their PMBOK which they never understood. They went on to give amazing numbers to their bosses and as a result everyone went on to venture in a crowded business and made it un-viable for everyone who has started it without knowing ground reality about the business.Whole mess has been started by marketing managers who doesn’t know any ground reality about business but who play efficiently with numbers, statistics, case studies and PowerPoint presentations.
Now these folks are calling this crisis as a event that occur once in a lifetime and it was beyond imagination of everyone. Mess that has been created by managers without understanding of real condition. Mess that has been created in the name of expansion and diversification. Mess that has been created by leverage. Mess that has been created by greed of creditors. Mess that has been created by fictitious value creation by banks. Its all the creditors of Dubai who should be blamed rather than its vain leader for providing it money in bucket loads.
Analysts expect Dubai to receive financial support from Abu Dhabi - a fellow member of the UAE and home to most of its oil - though it may have to abandon an economic model focused on developing swathes of desert with foreign money and labors resulting in huge no. of job losses as cost cutting & restructuring efforts in the next few months.
Analysts expect Dubai to receive financial support from Abu Dhabi - a fellow member of the UAE and home to most of its oil - though it may have to abandon an economic model focused on developing swathes of desert with foreign money and labors resulting in huge no. of job losses as cost cutting & restructuring efforts in the next few months.
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