Al Fahim’s $2.4bn Pearl Dubai contract a brilliant move
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How could anybody possibly proceed with a $2.4 billion building contract for the Pearl Dubai, an iconic multi-tower development opposite the Palm Jumeirah, in the current economic environment?
Or has Abdul Majid Esmail Al Fahim lost his mind? Anybody who has read the story of how this remarkable Abu Dhabi family moved from rags to billionaires within little more than a generation ought to stop and think before arriving at such a conclusion.
Yet on the face of it awarding one of the largest ever building contracts in the history of the Gulf yesterday to Al Habtoor Leighton looks like madness. Is Dubai not about to suffer from a surfeit of accommodation as local firms downsize for the recession next year?
Cyclical upturn
Perhaps – although the real estate market is still pretty tight on the rental side. But of course the Al Fahim project will not be hitting the market next year. Projects like this generally take at least three years, even in Dubai. By then the city will likely be booming again.
The Al Fahim family is no stranger to economic cycles. The word is that they have been selling assets at the top of the market in the UAE ready for the downturn and in order to finance the Pearl Dubai from their own resources: no need to worry about the global financial crisis and borrowings.
Plus in a cyclical downturn a project is far less likely to suffer from building material or labor cost inflation. You set the price for the contract and it will come in on time and to budget ready to meet a cyclical upturn in rental demand.
Location, location, location
To be quite sure of success Al Fahim has picked location, location, location with a unique site facing on to the Palm Jumierah, the icon of Dubai. It can also be stated that this developer is going to squeeze maximum value out of this land area with no less than four 73-storey towers as well as a premium shopping mall, 2,000-seat theatre and top hotels.
The Al Fahim family has removed itself from serious poverty to mega riches in a generation by skillfully taking advantage of the opportunities offered by the UAE, and its siting of its latest and most ambitious real estate development bang in the middle of New Dubai ought to be a lesson to others with less nerve in these troubled times.
I was there in Dubai last week. Situation is really pathetic. Whole the Industry. Many of the Dubai pearl customers are buy-back scheame customers. It is going to be a tough game.
Thomas S
February 10, 2009 at 6:20 am
It depends on the financial strength of the project promoter. This is a great project for the reasons given in the article above. Now the cost of materials and labor should be significantly cheaper.
Even in a situation of a market oversupply of property then the best locations will sell first – why buy an apartment in Dubailand if you can get one facing the Palm Jumeriah?
If you are not financially in trouble and can think long-term then the project still looks a winner – but of course every business plan is challenged by the changing market conditions. It has come as a U-turn from nowhere, every business planner’s nightmare. But the good side is that weaker competition will be eliminated, and that downside correction could ultimately produce better business conditions for the top projects.
peterjcooper
January 15, 2009 at 8:48 am
1 would like to know your openion on this topic now ( 2009 ) . Many things have changed since November 27
Thomas S
January 15, 2009 at 6:32 am
How fascinating – your opinion has to be respected – but I wonder how rich the Al Fahim family would have become if it had followed the more cautious options early on?
By the time the crisis ends you will have a magnificent property ready to earn big rental returns – money in the bank would show no capital growth and likely very low interest rates.
You know really if Dubai as a trading and commercial center is dead then nowhere in the world is safe – and that would also mean money in the bank.
The families in trouble will be the ones with big debts against large projects that have no tenants or buyers right now – not ones who invest in top quality projects at low prices and low debt with delivery in the future. Well I could be wrong, I am not an Al Fahim.
peterjcooper
December 3, 2008 at 9:17 am
I am from the alfahim family, and you are wrong.
This is probably the worst mistake ever to make, but the deal was already done before that, all investors will loose money and there is no way to stop it.
Better to keep the money in the bank and wait until the crisis ends.
This move will make them very poor again.
Al Fahim
December 2, 2008 at 8:39 pm
You know I used to think exactly the same thing when I lived in London: why were the best areas of my city occupied by foreigners while I had to live on the outskirts in a not particularly great place? It is all down to economics and who has the money and who does not. Over time empty skyscrapers will gradually be filled by the lower paid at lower rents, unless higher paid people chose to live in them first – it is all down to market forces, I am afraid Father Christmas is just a fairy story!
peterjcooper
November 30, 2008 at 9:44 am
It seems you are paid generously, I have lived and worked in UAE for many years and I can tell you such articles will not hide the long money laundery line.
Can you explain to the readers why all those high scrapers are vacant when people are crammed in small places and can’t afford to rent a sardine tin in Dubai? Please be kind to father Christmas and do not delete his message.
Mike Ruthman
November 29, 2008 at 7:13 pm
Well perhaps – but I suppose this is just a personal perspective on investment, and these are my main interests at the moment, if that changes so will this blog!
peterjcooper
November 28, 2008 at 5:21 pm
Hi wonder whether you should not separate your views – in terms of blogging – on Dubai and the ones on Gold.
As an outsider to the Dubai region, I certainly can feel both an argument in favor of Dubai and vested interests in the location and we can certainly understand them.
However you are possibly mixing two classes of investment that will not evolve on common ground and premises in the future, both near and long term.
Kind regards for this nice web site and resource.
Daniel de Paris
November 28, 2008 at 3:16 pm