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


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.


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.

Is this the end of road for Hammad Siddiqui?

Hammad SiddiquiI should start this post with a warning that this post comprises of my thoughts and theories about Hammad Siddiqui’s disappearance from the scene. A lot would come clearer in next 24 hours once MQM has its workers’ convention and finalizes the new office bearers. Also this post is not about how the present changes MQM is going through are actually beneficial in the long run for denizens of Karachi as PTI’s victory in NA-250 as well as its emerging as 2nd largest party in Karachi with votes running into tens of thousands in those areas where MQM thought it has 98% of vote bank is forcing MQM to reconsider how it runs Karachi.

Who was Hammad Siddiqui and what forced him to run to Dubai overnight are the questions in everyone’s mind. Hammad Siddiqui was head of MQM’s Karachi Tanzeemi Committee (KTC) and after the Rabita Committee (RC) beating he was suspended from his position. The beating of RC I have covered in detail in my earlier post Why and How Rabita Committee was beaten? So the next question is what is KTC? In short, all sector incharges of Karachi report to KTC. A brief overview of MQM’s organization structure with respect to KTC is in order. Below is an excerpt from an email/post going around on facebook attributed to different people. Whereas those people have denied that they have written it, however, the below part is more or less true.

MQM is a very well managed organization which works under a tight command and control mechanism. They have divided Karachi into number of sectors; each sector is divided into units. The first tier is called the unit. There are MQM units in every nook and corner of Karachi. Every apartment complex has one unit, and nearly on every 500 houses there is a unit. The units report to a particular sector under which they come. Each unit has a unit in-charge and other proper posts. As these guys live among us hence they know each and every house and shop that come under their supervision. The unit in-charge literally controls whatever goes within the jurisdiction of his unit. From cable person reporting to him to the SHO of that area every one obeys that unit in-charge. They snatch mobiles, get bhatta from shops, get their students cheated in exams, confiscate skins at Eid Ul Azha and collect fitra on Eidu ul Fitar. The collections from units goes into millions and collection from Karachi goes into billions on daily basis.

The units report and submit their loot to the sectors, each unit in-charge has to sit in sector on frequent basis from where they get instructions. The sectors report to Nine Zero (90 is the address of the house of Altaf Hussain in Azizabad Karachi) this is headquarter of MQM. This is the reason that within minutes they can jam Karachi as they just need to make one call from 90, the instructions go to sectors where they call unit in-charge who have complete arms and ammunition. No Karachite can stand in front of them as they easily and without mercy kill. If they want to threat someone, they write on their house wall ” Jo Qaid ka ghadar hai who mot ka haqdar hai”

Lets divide MQM into two wings for our ease. One is political wing which is involved in law making, policy research, etc. Rabita Committee is part of political wing of MQM. Then you have the non-political wing (for lack of an appropriate word). This comprises of grassroot MQM workers of Unit offices and Sector offices. These are the foot soldiers of MQM and some of them also acts as part time militants of MQM. The non-political wing for Karachi reports to KTC which is or was headed by Hammad Siddiqui.

To use an army analogy, Hammad Siddiqui commands battalions and foot soldiers and this is where the real power lies. Similar to how soldiers are loyal to their commanding officers, the workers are loyal to unit incharge who in turn is loyal to his sector incharge who in turn is loyal to Hammad Siddiqui who in turn is loyal directly to Altaf Hussain. Whereas the political wing understands the political challenges MQM faces as a political mainstream party and tries to work within the system, the non-political wing does not feel such obligation. On paper, we have two RCs one in London and one in Karachi. Then you have KTC. The way it is supposed to work is Altaf Bhai is supposed to issue instructions to RC London who should convey it to RC Karachi and who in turn should act accordingly or if the need arises issue instructions to KTC. However, in reality, RC London is a cost centre because they don’t have source of revenue. RC Karachi sits on the goldmine that is the economic engine of Pakistan. Hence, there is always a power struggle between RC London and RC Karachi.

The slogan “Jo Quaid Ka Ghaddar Hai, Wo Maut Ka Haqdaar Hai” was made for KTC people and they firmly believe in it. There is a new slogan in town Altafist i.e., people feel their loyalty is more to Altaf Hussain and not to party or its ideology as such. You can think of KTC as Altafists ie they are more loyal to their chain of command and their boss Hammad Siddiqui answers to Altaf Hussain and not to the hierarchy of political wing. Though KTC and political wing may work together but if push comes to shove, KTC will not hesitate to beat the shit out of political wing if Altaf Hussain asks them to do it as we witnessed few days ago. Political wing is aware of this and has been wary of this sword hanging over them for a long time.

Now that we have understood the basics. What happened on the fateful night was pre-arranged between Hammad Siddiqui and Altaf Hussain. However, Altaf Hussain was not ready for the blowback from RC members and the latter has as a minimum asked for removal of Hammad Siddiqui who they never liked anyway. You must be asking how come RC Karachi holds so much sway when they could be beaten so easily. Answer is that RC as they are the ones who present the liberal, progressive and secular image of MQM to the world. Secondly, the election results with PTI threatening the crown of MQM as the only representative of people of Karachi really shook things up in MQM. When Altaf Hussain finally woke up from his drunken stupor he realized that MQM’s stature is under threat and decided to shake things up and make MQM a “decent” party. So his talk about no more charity collection (also known as extortion) by MQM along with other measures is part of improving the image of MQM.

So to appease RC, Altaf Hussain had removed Hammad from the party for doing exactly what Altaf Hussain asked him to do. However, as stated above, Hammad controlled KTC and footsoldiers and if Hammad orders them, they may rebel against the party or at least the political wing and by the time Altaf Hussain wakes up from his next hangover, a new management would be in place in Karachi, though still loyal to Altaf Hussain but no intellectual depth extortionists comprising of KTC. So RC had Hammad confined to MQM HQ and had orders issues that Hammad is not to contact any of the MQM workers and vice versa.

However, the Sector Incharges etc who are loyal to him would have still tried to contact him as is human nature as they have been reporting to him for years and despise the political wing similar to what happens in corporate world where people working in profit centres despise cost centres. So to put all such efforts to rest and so that no one catches on to it that Hammad Siddiqui is under confinement or has been killed by political wing, political wing leaks the news to media channels that Hammad Siddiqui has ran off to Dubai. The news spreads on electronic as well as social media like wildfire and everyone believes it as if major dent has been made in edifice of MQM. No one has seen Hammad Siddiqui at the airport and if he had to escape, he would go to UK and seek asylum instead of Dubai etc where intelligence agencies can reach him clandestinely as well as through official channels. The question no one is asking is why would you want to let Hammad go to Dubai where he can still call on loyalty of his sector and unit incharges and cause trouble when a new setup is far from established back home.

Is this the end of Hammad Siddiqui’s career? Probably, unless he is later forgiven by Altaf Hussain and joins back as Amir Khan of MQM-Haqiqi has done. However, I think he will remain hidden from the scene long enough that a new head of KTC takes over most probably a sector incharge of one of the lucrative sectors of Karachi. Alternatively, someone from London office may be made a KTC head so that KTC still remains loyal to Altaf Hussain and keeps a check on political wing. However, once the new head of KTC has established himself and more so if its a sector incharge, it will be in benefit of new KTC head that all incharges feel loyalty to him and not Hammad anymore. If lot of time passes, and Hammad arrives on the scene again trying to assert his authority, this time it will be the new KTC head who will have Hammad killed for becoming a challenge to his authority.

Hammad may be able to join the political wing or London RC, but I think his days as KTC head and major power player in Karachi are over. I could be 100% wrong in my above prophecies and could have waited half a day to see the outcome of workers’ convention but then where is the fun in that.

I would love to hear from you of what you think of it. You can put your statements in comments section below anonymously, send me an email on the address that appears in the sidebar or create a fake twitter account and tweet to me.

Two pieces that I recommend you read but take them with a pinch of salt are

MQM bubble about to burst (The Spokesman)

Britain’s relationship with MQM (Pak Nationalist)

Those who are believing this is end of MQM do not understand either politics or society of Karachi. Unless some revolt takes place, MQM is on a path to restructuring on which a very detailed post is needed which if life and time permits me I will write one of these days. One also needs to understand the dynamics of politics and violence in Karachi to understand MQM which for an outsider is pretty hard to do.

Whispers on the street: Altaf Bhai has called back boys that are based in South Africa. If true, doesn’t bode well for future if city as South Africa is say where high profile target killings are planned by MQM. If its kiss and make up with Hammad at workers convention this evening. The next few weeks will be very bloody in this city.

It’s been reported in news that PPP backed People’s Aman Committee killed 16 members of MQM backed Katchi Rabita Committee in a week. Probably South African death squad is being brought back to take on Amn Committee.

WARNING: All the above forecasts are ramblings based on rumors, information from reliable sources as well as my hypotheses and should be treated as such.


Dubai property bubble: This time its a different con

Government of Dubai (GoD) through various media mouthpieces keeps announcing that Dubai real estate has bounced back and is on an upward trajectory while the signals out of property markets of rest of the world economies can be described as mixed at best, with certain regions experiencing slight gains in real estate values and others still stuck at the bottom.

Dubai Government : Hype creator
No one would believe if the UAE papers report that real estate market is rebounding because they had continued carrying news items about increasing prices Dubai even as the bubble was bursting in late 2008/early 2009. So rather than forcing papers to report false property indicators, Dubai government decided to take matters in its owns hands.

On Nov 24, GoD announced building of a new city  to be known as Mohammed Bin Rashid City (MBR City) which like all landmark projects in Dubai, will comprise of bigger than this or taller than that developments. The press releases are reported by local news agencies as news  which are then picked up by international news agencies and reported as such. Most of GoD’s projects are so fantastic and are to be delivered so far in future that such news items (a press release should be a more appropriate classification) are always thin on details as no spadework has been done except for probably a pre-feasibility study by one of the myriad renowned real estate agencies who are keen to get their fingers in the pie. The press releases are accompanied by artist’s impression of the completed project but they are more suited for science fiction websites as concept art.

Emaar : Usual Suspect
Three weeks after the above announcement was made, Emaar (one of the two major real estate development arms of UAE government mainly responsible for the bubble last time, the other being Nakheel) announced a project known as Dubai Hills in MBR City which was a press release on Emaar’s website but was again reported as news by local news media:

Emaar Properties and Dubai Holding…unveiled Dubai Hills, the first project in the new ‘city within the city’ development….The new gated community will provide ultra-luxury residences, designed to the bespoke considerations of the owners. The exclusive gated community is designed around a new 18-hole championship golf course to be developed by world-renowned golf course experts, with the villas to overlook the rolling greens and fairways. Each villa will be set on spacious plots of 20,000 to 30,000 sq ft, giving customers the option to develop mansions of their choice in the heart of the city. 

Such news items (or press releases) may make enthusiastic ripples in the region but the ground reality in Dubai is very sombre. One has to realize the far-fetchedness of the above project. It is a “city within the city”. Will the inner city be built first and outer city will grow around it or infrastructure and master plan of outer city will be laid out first and then inner city be built on one portion of it. This being Dubai, details are not available.

Projects around golf courses announced with much fanfare pre-crisis are still stagnant or have yet to translate from the drawing board into anything on the ground such as  Jumeirah Gardens, Juneriah Golf Estates, City of Arabia etc. Not to mention that much heralded and completed Montgomerie Golf course designed by “world famous golf course expert” Colin Montgomerie is suffering because of recent budget cuts and mismanagement. Managed by Emaar and Troon Golf, it can easily be classified as world class facility in third class condition.

Residential projects around golf courses and greens were not the only bubble. The number of theme parks announced in a city of size of Dubai just boggles the mind. All of them are stalled. (Click on this link to take you the list of the theme parks announced by Dubai). Yet again we read this:

Ten years after the launch of Dubailand on the outskirts of the emirate, big-ticket tourist attractions are moving back to the city centre.

“Dubailand was intended to include a number of theme parks not dissimilar from the ones it announced last year to be developed in Jebel Ali, and now proposals for the world’s largest Ferris wheel, which was originally planned to be built in Dubailand, are being brushed down and moved to JBR.”

The announcement follows news last November that Meraas would develop five theme parks at Jebel Ali at a total value of Dh10bn. The project will start with the Dubai Adventure Studios park, which is scheduled to be completed next year.

Why can’t they just start with one project and once it is finished, start another one? Why do they have to have four or five or ten landmark projects under construction at the same time?

The Off-plan Con
The property bubble last time was marked by a long line outside Emaar and other developer offices in Dubai the day sales of “off-plan” properties were announced (off plan means properties that exist only on paper as “concept art”) and used to be all sold out same day. Many of those properties never got built.

A similar scene was witnessed outside Emaar sales office in late January this year (this year being 2013) on the announcement of sale of Emaar’s latest off-plan development Fountain View. The process to buy the property is that you have to register your interest at Emaar’s website. Then you are informed that you have been fortunate enough to be allotted a token. You have to stand in a queue outside the sales office on the appointed day with your token in hand wherein units will be sold on first come first serve basis. The news papers and press releases carry tentative prices and final price is announced on the day of sales. You are supposed to bring your cheque book and submit a 10-20% down payment in form of cash/cheque there and then.

People start standing in queue from 6.30 AM. They may be standing for hours as the queue moves slowly and may hear the announcement that all units have been sold and people who didn’t get in can go home empty handed. The problem is that Emaar allocates much more tokens than there are actual units. They do it purposefully to create the demand of the property as well as allowing the media to hype it up by showing pictures of people standing in line.

Moreover they are tight lipped on how many of the announced units were actually up for sale. In the absence of such information, the impression is always that there was such huge demand that all the announced units were sold. The closest any paper has ever come to highlighting this issue was for another recent hyped up and sold out project Sky View sales of which took place last week (last week being late Feb 2013). The paper Emirates 24/7 stated

He added: “We were told that all the units in the project released in Dubai had been sold out.”

Another investor, who wished not to be named, said he had also been told by the company sales staff that all units released had been sold out.

Emirates 24|7 could not be confirm how many units were released for investors in Dubai.

Money Laundering
With mortgage market still relatively tight and effectively weak UAE anti money-laundering laws, majority of current real estate transactions are based on cash/cheque for full amount. (Businessweek covered this story here). There is huge influx of money in the form of cash-in-suitcases (literally) from Iran, Russia and countries affected any civil wars/ Arab spring.

Whereas expatriates living in Dubai had burnt their hands severely in the last bubble and wary of any new real estate adventures as they have yet to see any signs of development of the last “off plan” property they bought, most current investors are people running from economic or political unrest and are falling over each other for signing up for these castles in the air.

The risk here is that many of these buyers are criminals or are running/hiding from regimes back home and are not looking to acquire these properties to live in rather use them as investments to “flip” or park their ill-gotten gains and in some cases to launder their wealth. As such, the demand for these properties is not permanent or genuine and can vanish quickly if prosecutors back home try to claw back the money.

News Media and International Real Estate Agencies : Accomplices
There is no independent media or research agency in Dubai inquiring whether there is a genuine demand for such high profile projects, does the government have the funds, who are the buyers etc. Even the world renowned real estate agencies are in on the game as frankly they get revenue when sales of projects takes place even if the project is never translated from artist’s impression of the completed project to ground breaking of the site. News media specially print media gets full page glossy ads about these projects.

If one reads the various press releases (most of the time reported as news) by internationally renowned real estate agencies operating in Dubai, the real estate prices in Dubai are always either flat or rising (they never fall).  It was widely reported in media that real estate agency Hamptons MENA says villa prices increased in Dubai by 30%. No one mentioned the fact Hamptons MENA is owned by Emaar, a fact that could have been easily verified from the agency’s website.

If one tallies the price increase in Dubai property prices as reported in media over the last few years, the prices should have risen to multiples of pre-crisis levels as price increase in Dubai has never been in single digit percentage points. Its always an increase of 20% or 30% and sometimes even 40%. Below is the news from most recent report by Knight Frank:

Luxury property in Dubai recorded the world’s second highest price increase last year, according to international property consultancy group Knight Frank.

The value of top end homes in the emirate rose 20 percent, equal to the island of Bali and behind only the Indonesian capital, Jakarta, which saw luxury property prices increase by 38.1 percent.

Central Bank : Weak regulator
Recently, UAE central bank proposed new mortgage laws that required expatriates to put down 50% equity to qualify for mortgage. The purpose was to partly deflate the bubble that the central bank believes was developing in the real estate market. However, the Emirates Banks Association (EBA), representative body of banking sector, opposed the move and as such central bank has retracted the proposal saying a new proposal would be put in place in 6 to 9 months after consultation with commercial banks. Commercial banks still hold lot of real estate assets in their books and are fearful the proposed law may result in decrease in price of properties thus forcing them to take more provisions. On the other hand, when most of transactions taking place are in cash, the introduction of law wouldn’t have caused much dent in the prices.

Few sane voices
National Bank of Kuwait is reported to have said in their recent note that property prices are 45% down from their peak of 4 years ago which means that on overall level, prices haven’t risen much from the bottom that they touched. However, such  voices are drowned by “apparently” respectable personalities. Around same time chairman of Emirates Banks Association Abdul Aziz Al Ghurair claims that “UAE property values have returned to their pre-crisis levels and in many cases have climbed higher”.

I don’t know how confident one can be of buying a property when told that the prices are at peak bubble level.

To cut through the bullshit, one need only read this as reported via Reuters:

An official at a top construction firm in Dubai, speaking on
condition of anonymity because of the commercial sensitivity of
his remarks, said concrete construction plans had not yet been
made for any of the recently announced projects.

“It will be a while before all this translates into work for
us or anything starts, if at all,” he said.

My two paisas : Caveat Emptor

Whither Islamic Finance?

Since the credit crisis hit Middle East, people are constantly bashing Islamic Finance as a failure. I just intend to expose the ridiculousness of one of their arguments over here.

One can easily Google info about Islamic Finance over the internet, so I will not expend large amount of words on explaining it.

If you have taken Econ101, it defines three roles of money:

1. Money is a medium of exchange
2. Money is a measure of value
3. Money is a commodity (trade-able)

In Islamic Economics, the third one does not stand or is not allowed. You can not trade money, you cannot make a profit on it. As such, interest (or profit) on monetary loans is forbidden. This is the essence of Islamic Finance, the implication being that one can only trade hard assets. Hence Islamic finance is also known as asset backed finance.

People claim that money is also an asset like other assets and should be tradeable. Islam does not deny this, it just forbids you to treat it like one. It is clearly mentioned in Quran that they will claim that Riba (profit on money – interest) is like trading but Allah has allowed you to trade (assets) and forbidden you from Riba.

It is very clear that anything above principal in a money lending transaction is Riba, however, the naysayers are at pains to point out that translation of Riba is Usury and not Interest ( I have no idea where did they come up with this arbitrary differentiation). Thankfully Quran remains in its original language of Arabic otherwise I shudder to think that what else people would have claimed as lost in translation.

Now we come to the question of failed investments in Islamic Finance _ falling investment values, defaults on sokouk etc. Like any other investment, islamic (shariah compliant) investment vehicles also face risk and rewards.

Just because a company has raised money through shariah compliant means does not mean that it will definitely be profitable. If that money is used to make speculative deals in real estate (like Dubai companies have done) Shariah compliant or no shariah compliant, the investment has to go kaput.

Investing through Shariah compliant products may require you to maintain similar or even harsher level of due diligence than conventional finance because it not only restricts you from certain forms of raising money but also forbids you in making certain type of investments. If you do not do your homework, you are bound to fail.

People have used a default of a few sokouks and failed performance of few institutions to decry Islamic Finance.

If we want to use the same logic, I think the conventional banking in US, UK and Europe should be shut down as this credit crisis has shown them to be the most failed institutions/systems in the world requiring massive amounts of government funds to stand up. Similarly, such well regarded investment banks as Bear Stearns, Lehman Brothers, Merill Lynch have blown up within a year. Does this mean that investment banking and conventional commercial banking is a failure?

An argument that seems totally reasonable to decry conventional finance, people find it reasonable to bash Islamic Finance.

Islamic Finance is viable and workable economic model and is working fine wherever it is implemented. However, it has failed to gain traction not because it is flawed but the way it is practiced today. A few examples:

1. Replicating conventional methods
Most of the IF institution deal with borrowers that also borrow from conventional institutions. In order to make the borrower comfortable and  avoid teaching him intricacies of IF, IF institutions try to make their instruments look as similar to conventional instruments as possible that the only thing that is different is the word “profit” instead of “interest” in the loan agreements.

2. Offering similar investment products
By definition, derivatives are haraam in IF. Now if you go and create instruments and structures that offer you the same risk/return profile as derivatives but with a label “islamic”, then you are just trying to fool God. Might as well slaughter pigs and sell them as “halaal” pork.

3. Manpower
Conventional banks with their promises of bonus and high payscales attract top graduates. In order to not be left with low class talent, IF institions try to attract employees from conventional banks. These employees  have been trained to offer conventional instruments and are only interested in their bonuses and neither care about Islamic Finance nor educate themselves about its products. Rather than learn about the product and make a concerted pitch to the customer, they take the easy way out saying that this is a conventional product with the Islamic label.

These are some of the factors that bring a bad name to Islamic Finance and are the reason behind the infamous Urdu quote  “kaan ko, sar kay uper say haath ghuma kar, pakarna” (To grab the ear, with the hand coming around the head).

UPDATE: You can read the subsequent post in the series Whither Islamic Finance – Part II.

Whats next after DP World scare? National Bank of Kuwait

I have done my share of Dubai bashing last year. When financial companies were crashing world over, Dubai was trying to hold its own by false proclamations from none other than ruler of Dubai and false reports by investment banks which were keen to remain in good books of Dubai authorities. Some people are just delusional assuming that if they close their eyes, the danger would just fade away. However, with the scare of Nakheel debt default in early December, it seemed that reality had finally reached this part of the world and last man standing of Middle East had finally fallen.

Actually NO. There is one other financial behemoth and it has been deluding auditors, credit rating agencies as well as financial press. The amazing thing is that despite signs visible every where, nobody has raised an eyebrow. This is the elephant in the room that no one wants to talk about. I am talking about National Bank of Kuwait more commonly known as NBK which has been awarded one of the safest banks in the world.

When financial institutions world over including middle east were taking provisions on their investment and real estate portfolio, coming out of closet and declaring losses on their derivative transactions, NBK was conspicuous with record profits and minimum losses. When all investment sectors were declining in value, how could NBK remain immune to the losses unless it was shorting securities which NBK being a commercial bank is not allowed to do.

So what gives? I would not need to tell anyone if people who are paid to do this job i.e., regulators, research analysts and credit rating agencies asked a simple question: when the whole region was growing based on real estate didn’t NBK finance this growth being one of the largest institutions? It seems the people were not doing their job diligently because the answer to this question is a resounding YES!!!

NBK has provided Al Kharafi Group (construction arm that is a contractor as well as major supplier of cranes in Dubai) financing by a conservative estimate to the tune of KD600 million (other estimates put the value at KD 1Billion). This puts NBK exposure to Al Kharafi from USD 2 Billion to USD 3.5 Billion which is not a small amount if no provision had been taken so far which my sources claim that none has been taken.

Recently there was a lot of activity in the local stock markets wherein Kharafi was trying to offload its strategic stake in Zain but the deal could not go through. The sole reason that Kharafi wanted to sell its stake was it wanted to settle its liabilities with NBK. I am not aware what accounting logic NBK is using to avoid taking a provision against such a huge exposure to a single counter party.

And there is more. People in Kuwait tell me that two tallest towers in Kuwait (one under construction Al Hamra Tower and the other recently completed Al Raya II) were financed by NBK. However, the developers are unable to payoff the loan and as such NBK has shifted / will shift its staff from rented premises to these towers which they will occupy rent free (non-payment of rental to be considered repayment by developer through some twisted accounting logic). NBK is currently occupying around 20 floors in Al Raya II and will be occupying equal number of floors in Al Hamra Tower once its completed.

Though NBK is a well capitalized bank and losses to the tune of USD 4 to 5 billion might not affect its footing significantly, however, I am flabbergasted that the bank would hide such huge amount of losses for so long.

Woodstuck Pakistan

In Karachi Fashion Week proud designers brought out skimpily clad models as a show of defiance against the Taliban and terrorist activities in the country and created a hype in world media not least because the organizers and journalists used every available forum to tout it as showing a bold front to Talibans. The event was a success and thank heavens no untoward incident happened. The designers and media organizers had shown the proverbial finger to the Taliban.

Score : Media 1 – Taliban 0

GEO TV and musicians did not want to be left behind. Earlier, Bob Geldof through his Live 8 and Live Aid concerts, had brought awareness of certain issues to the forefront across all continents which were soon forgotten as soon as singing was over. GEO wanted to replicate a similar feat though on a much smaller scale by having AAG live concert with 12 hours of live transmission across three continents.

The concert was touted as Peace Concert aka Pakistan’s Woodstock and the purpose would have been to show that people in Pakistan are fed up with Taliban and want peace (this they would show by dancing to music).

Whereas Karachi Fashion Week showed the birdie to Talibans by having the event far from troubled areas of Punjab and NWFP in a five star hotel under extremely tight security in Karachi, Woodstock Pakistan attendees would not have to worry about their lives and they can dance the night away for the sake of peace in Pakistan in the security of Wonderland, Dubai.

Well it seems that Taliban had nature on their side on this one. Due to the bad weather, the concert was canceled. Whereas every medium available was used to announced the organization of event, its cancellation was sheepishly mentioned just by a small ticker on GEO TV.

Score : Media 1 – Taliban 1

Looking forward to the next event to see how the scores pan out.


It seems that Taliban had nature on their side. Cafe Pyala has an excellent post on their website explaining a fiasco that Live AAG concert has been.

Final Score: Media 1 – Taliban 2