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DUBAI: An international meeting in Paris next month may trigger billions of dollars of fresh investment in Dubai — and, if plans are not handled carefully, contribute to the kind of boom-and-bust cycle which nearly bankrupted the emirate four years ago.
Dubai is competing with Izmir in Turkey, Sao Paulo in Brazil and Yekaterinburg in Russia for the right to host the 2020 World Expo. A vote of the 167 member states of the Paris-based Bureau International des Expositions is expected to choose between them at an assembly on Nov 26-27.
Holding the world’s fair would be a defining moment for Dubai, marking the transformation of the emirate of 2.2 million people into a top global centre for tourism, trade and finance.
But it would carry a risk. Anticipation of a spike in demand due to the World Expo could cause property developers to build too many residential and commercial projects, and investors to pour too much money into them, inflating a speculative bubble that would eventually burst.
Such a bubble popped in 2008-2010, when the global financial crisis caused Dubai property prices to crash by more than 50%, shaking financial markets around the world.
“If Dubai wins the World Expo 2020 bid, we will witness another boom in the property market,” said Khalid Kalban, chief executive of Dubai-listed property developer Union Properties, whose share price is up 142% so far this year.
“Hopefully this will be a planned boom rather than a speculative one, which we saw before,” he said.
Thanks to its status as an international business hub, as well as a slick public relations campaign, Dubai may be the front-runner in the competition to host the Expo — although it could face stiff competition from Izmir, which lost its bid for Expo 2015 to Milan by 86 votes to 65. Signalling Dubai’s determination, the logo for its Expo bid adorns government vehicles, buildings and emails.
Because of Dubai’s small population, the Expo could have more of an impact on its economy than most host locations. The government cites a report by consultancy Oxford Economics which estimates the event would attract 25 million visitors over six months and create about 277,000 jobs.
Many property developers have expressed interest in projects around the proposed 438ha Expo site in Jebel Ali, near Dubai’s new airport and the third busiest port in the world.
“Dubai’s real estate growth will be in this area,” said Craig Plumb, regional head of research at consultants Jones Lang LaSalle. In particular, “there’s a need for more hotels close to the Expo site.”
Some 45,000 new hotel rooms would need to be added, based on the government’s calculation that 70% of the visitors would come from outside the United Arab Emirates, HSBC analysts Patrick Gaffney and Aybek Islamov said.
A huge exhibition centre would need to be built. Dubai’s transport authority said in June that it would expedite plans for a 5 billion dirham (RM4.4 billion) extension to its metro rail line if the emirate won the Expo.
As a result, total spending related to the Expo, including private sector projects, could reach US$18.3 billion (RM58 billion), HSBC estimated. That would still be dwarfed by China’s spending on the 2010 Shanghai Expo, which totalled some US$58 billion according to Chinese media reports. — Reuters
This article first appeared in The Edge Financial Daily, on October 22, 2013.
