Is Dubai back? Do I have anything against Bahria Town?

Dubai is heating up again if hundreds of billions of dollars of new projects announced in last two weeks to coincide with Cityscape Dubai. Both Dubai and Abu Dhabi are in this game.

Property, transport and power: Mega projects that will shape future of the Emirates

Beyond the halls of Cityscape, where the towers of tomorrow will jostle for position with other real estate developments, a handful of mega projects are rapidly transforming the non-oil economy of the Emirates. They represent a key part of a blueprint aimed at diversifying the nation’s economy and using hydrocarbon wealth to build industries of the future. From the nuclear reactors taking shape in the west to the pipeline carrying crude to the east, massive infrastructure projects worth hundreds of billions of dollars are changing the industrial foundations of the country.

You can click on the link above to read about the details of these projects. I will not go into financial details as I have noticed that most of the time people are just looking for headline grabbing news items. So I will use news headlines. I am not telling you that it is a mirage nor I am telling you not to invest in Dubai. I just want to let you know that be careful of what you invest in. Do research and don’t rush. If it is too good to be true, then probably it is.

This is the picture of Damac’s Akoya project that they unveiled in the current Cityscape.

This is how they are marketing the project

Who in the world uses Mafia Don’s picture to market the project. Probably most of prospective investors will find this harmless or even say that I am building unnecessary links. May be I am. But then you have this at the same time Cityscape exhibition is going

Dubai real estate promotion
DAMAC promotion before 2008. Giving away a private jet with the property. We still have some way to go till that time returns

Dubai’s Damac accused of selling same project twice

Damac publicly claimed at one point that 75 percent of La Residence had been sold off-plan, despite never laying a single brick.

In March this year, the company announced a new project branded by Hollywood studio Paramount on the same site, before launching sales to a fresh batch of investors.

Email correspondence between the investor and an agent representing Damac seen by Arabian Business urged the former to accept the offer, warning that the developer has significant legal clout and the backing of Dubai’s royal family.

True unlike last time, there is little bank debt so this is not leveraged speculation. People are putting up their own money. The advantage of this will be when the market crashes, unlike last time, banks will remain standing but investors will be left without their shirts.

State-owned developer Nakheel even said it would restart work on one of its most ill-starred projects, a palm-shaped artificial island with an amphitheatre which helped to drive it deep into debt a few years ago. But people are still as blind:

“We are seeing the same hype again as in 2008,” Jammal Hammoud, head of investment firm Milestones Capital, told a meeting at Cityscape.

Hours later, a scuffle broke out in the building as hundreds of would-be buyers lined up to take advantage of special offers from state-controlled developer Emaar Properties. Security had to be called to control the crowd.

One investor, who did not wish to be named, said he had just reserved a yet-to-be-built, four-bedroom apartment at Fountain Views, an Emaar project, for 4 million dirhams ($1.1 million).

“I had just a few minutes to decide because there were so many behind me who wanted the unit. I just took it on the hope that Dubai will be booming soon,” said the Indian national.

You are investing millions of your own money and you are deciding it in a few minutes. If the same guy was working for a bank or an investor he would take days if not weeks to decide whether to invest his employer’s money. But since it is his own money, he doesn’t care.

Dubai’s Deyaar JV says new project sold out

Deyaar

A joint venture between Dubai real estate firms Deyaar Development and Dubai Properties Group said that phase one of its new project had sold out following a two-day sales event.

Arady Developments said that units at its Central Park Residences went on sale over September 14-15, with investors snapping up all of the released studio, one-, two- and penthouse apartments. The company did not specify how many units had been put up for sale.

These companies had been in Dubai for last many years. The expats who are buying these properties would have been there would a few years. What has changed in last couple of months that suddenly all projects and properties that nobody considered was worth investing in are selling like hot cakes. Or is it a race to get your hands on anything that is available. (FYI Deyaar is owned by Dubai Islamic Bank which is in turn owned by ruling family)

Meydan Business Park sold out

All 120 plots in the Meydan Business Park have been sold out with the prices in the sought-after location fetching as much as AED30m ($8.17m), the developer revealed.

“We had approximately 120 (lots) and we’ve sold it out just before Cityscape,” he said, added that about 80 to 90 lots sold within two months of hitting the market.

US$8 million property is not cheap. Are these people buying these properties to live for capital gain. If its to live in them, may it be a comfortable and dream home for them. If they are buying to put on rent or sell at a capital gain, we are in property bubble and last one holding the title deed will not be wearing shorts when the tide goes out.

Meydan, Meraas launch Dubai Canal homes project

Mohammad Al Khayat, Meydan’s head of commercial and free zone, told reporters at Cityscape Global on Tuesday that the joint venture, which was valued at about AED30-35bn ($8.62bn-$9.53bn) in sales, would be for residential development on both sides of the canal.

A project of the size of $9 billion in sales. That is just one project. There will be another projects as well. Does Dubai government have the cash to carry out all the infrastructure work probably in tens of billions of dollars that is a prerequisite for these projects to take off. But position of Dubai is not so strong.

IMF warns Dubai on debt risks
But Dubai’s debt remained “substantial” at $142bn, about 102 per cent of GDP, the IMF said. Around $60bn of that amount fell due between this year and 2017, it said.

Forthcoming maturing debt next year included $20bn in Dubai government debt lent by Abu Dhabi and the Central Bank in 2009 as part of the Dubai Financial Support Fund. The cash was used to help companies struggling in the aftermath of the financial crisis.

Restructured debt related to Dubai World and Nakheel, the property company, will begin to mature in 2015 and 2016, the IMF said.

And probably to cover his ass, or may be he is jealous of Dubai’s growth or may be he wants to have “I told you so” moment when the time comes, Head of Abu Dhabi government development agency says that there is a bubble in Dubai real estate


Dubai headed for another slump within 18mths says Abu Dhabi chief

The head of an Abu Dhabi real estate firm backed by the Mubadala Group has predicted Dubai’s property sector will hit another slump in 18 to 24 months, saying the change was inevitable in an emerging market.

 

I have nothing against Dubai. Rather I think its a role model of how a country which could have easily been suffering from Dutch Disease controlled it (though didn’t eliminate it) significantly just by virtue of its visionary leadership. However, having seen friends and family burnt last time and jumping in again this time saying that “this time its different”, my only suggestion is its your money, just be careful what you invest in.

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Now coming to Bahria Town. Friends and family have called me to let me know that they have been receiving calls from real estate agents who are willing to buy registration forms from them at a premium of Rs.20,000 to Rs.30,000. At an investment of Rs.15,000, that is almost an 150% to 200% return.

So I asked them did any one sell their registration. No one has. So it is a paper return. Some one left a comment on my earlier blog post that he is ready to buy the forms. The question one needs to ask is that if there were unlimited forms this time and anyone could print the forms or get the forms from any of the bank branches and submit it over a number of days then why didn’t these buyers submit a form on the requisite day? Assuming something stopped them, I am still waiting for a single anecdote where someone has actually realized that profit. Till someone sells his form to one of these buyers, it is just a con game. If some common man makes some money, I am happy for him and may he do well. But when you don’t know what is the underlying property, its a gamble over a piece of paper.

I just leave you with story which made the internet back in 2006-2008 crisis

Once upon a time in a village a man appeared who announced to the villagers that he would buy monkeys for $10. The villagers knew that the jungle held countless monkeys, easily caught. The man bought 2 thousand.

As the supply diminished, they become difficult to catch, and villagers returned to their farms.  The man announced that he would pay $20. The villagers renewed their efforts and caught 1,000 more monkeys.

The supply quickly diminished, but before they returned to their farms the man increased his offer to $40 each.  Monkeys became so rare that it was difficult to even see a monkey let alone catch it. But they caught 500.

The man now announced that he would buy monkeys at $100! However, since he had to go to the city on some business his assistant would now buy for the man.   The man departed.

Then the assistant told the villagers, “Look at all these monkeys the man has in that big cage.  I will sell them to you at $50 each. When the man comes back you can sell the monkey’s back to him for $100.” The villagers queued up with all their saving to buy the monkeys.  The assistant took their money. They never saw either the man or his assistant again.

They now owned 3,500 monkeys. They were paid $60,000 to catch them, and bought them back for $175,000.

Again I wish Malik Riaz and all the investors good fortune.

Who is responsibe for violence in Karachi? It’s Sattar Buksh

I had written a few posts earlier about killings in Karachi and if anyone is interested in serious study or resources about it, I refer you to my earlier post Resources on Karachi Killings. Its has links to very rich and in-depth studies on violence in Karachi. But they all miss the angle that has come to light recently while I was browsing through a Karachi food forum on Facebook.

Karachi is a dichotomous city and probably Pakistan is dichotomous as well. There is a part of society that though complains of violence and inflation yet throngs to new food outlets in Karachi that “are popping up like windows on Macbook screens.” and has no qualms spending 5 to 10 thousand rupees on a lunch/dinner or even a snack out for four. It is customary to add here —> for 5 to 10 thousand rupees, a poor family of four can manage to feed themselves for a month.

One of those outlets is Sattar Buksh, a play on Starbucks. Sattar and Buksh are pretty common names in parts of the country.

The owners even got the low standard newspaper Express Tribune to report on its opening as a news.

Everyone’s talking about Sattar Buksh

Sattar Buksh is the latest addition to the list of cafes opened up to cater to the insatiable Karachi appetite, which is ready to engulf everything as people reach new heights of desperation in the entertainment-starved, terror-stricken metropolis. The new place has opened up in Clifton Block 4, that is fast picking up as the next swanky lane catering to the discerning and privileged. It has restaurants such as China Kitchen, Hook, Line & Sinker and the newly opened, Monte Cristo. The Sattar Buksh team says it wasn’t their first venue choice; the cafe was supposed to be in another location in Clifton.

You can read the whole article by clicking on the header. It makes for interesting read. Do not miss the comments as they provide an interesting perspective.

There is also a very active food forum on Facebook known as SWOT’s Guide for Karachi’s Restaurants, Cafes, Dhabas, Khokas and Take-outs and where people critique these food outlets. They can be brutal. Probably Sattar Buksh received one such brutal review which resulted in this

 

But probably that wasn’t enough. So he went on defending it with these arguments

 

All this time we have been looking for political, ethnic or financial reasons for people being killed mercilessly in Karachi. But now we find out that its rich entrepreneur kids who are opening eating outlets for rich people but upon receiving negative reviews go on a killing spree.

Bloody hell.

Post script: I didn’t know Pakistanis were giving HEADs to foreign outlets. That is why service at recently opened Burger King in Karachi was so bad as all the servers were busy receiving head.

Resources on Karachi Killings

I had linked to the below resources earlier but for anyone interested in doing some serious research or study about killings in Karachi, below links provide very useful resources:

As and when I come across new sources, I will update the list.

Is Bahria Town Karachi a good investment?

Bahria Town

I have already written a very detailed post about Malik Riaz and his shenanigans at Bahria Town. I have also tweeted about it a lot. However, I keep getting inquiries from friends and colleagues asking me if it is a good investment.

How do you analyze if anything is a good investment? When you ask what will you get in return for what you are paying for. So for Bahria Town, we will be paying Rs.15,000 (5,000 registration fees plus 10,000 credit towards first installment). What will you be getting in return? No one knows. The location of the project, size of the project, sizes of plots, price of the plot, number of installments etc is all guess work. Rather guess work is limited to location of the project. With respect to the rest of the information, no one has a fking clue.

So it is pretty hard to tell if it will be a good investment.

But what do we know about it. We know that we will be paying Rs. 15,000 per application. People are submitting 2 to 3 applications each and investing from all over the world. So I estimate that there will be 100,000 applications which I think is pretty conservative considering the hype surrounding it.

I did some back of the envelope calculation.

  1. At 15,000 per application, that is Rs.1.5 Billion for 100,000 applications.
  2. Lets assume that processing and booking and balloting and allotment etc takes a while. Can take up to 6 months but conservatively assume it will take 3 months
  3. Assuming he has negotiated a rate of 8% interest, Rs. 1.5 Billion in the bank will earn him Rs.30M in 3 months
  4. Add to it, Rs.5000 per application that he will not be returning and that is another Rs.500M
  5. So that makes a total of Rs.530M
  6. Deducting around 50-75M that he spent on advertisement, and that leaves him with Rs.455M
  7. Not a lot of money for him but still a handsome amount as it comes with no strings attached.
  8. If we add money he will be getting from other two projects and probably he might be able to get upto Rs.600M of money absolutely free.

I don’t know about the investors but for Malik Riaz and Bahria Town entity, this is pretty good investment. Against an advertisement campaign of Rs. 75M (ok lets make it Rs.100M by including future expenses), he will be getting Rs.600M. That is a 600% return in 6 months.

Only illegal Ponzi or gambling schemes guarantee such returns. And yet Malik Riaz gets it all legally.