Dubai was no sensible place to build a great city — Surrounded by expansive deserts, it offered few of the inducements to settlement and growth found in nearby major cities like Beirut or even Baghdad. Only the brave could dream of something so unlikely, so contrary to common sense.

A certain amount of contrivance would be required to bring resources, a population and industry to a place that lacked them all. But eventually the implausible became actual. In a matter of four decades, the global city of Dubai was a reality — an urban giant grown up in a place where no city should rightly be.

Back in 2002, real estate was an industry that consisted of two groups: home building and income producing. The home building group was akin to a manufacturing process with builders using raw materials and resources to construct homes and sell finished products at a process. The income producing group constituted buyers who then would rent out real estate, typically for long-term investment income. However, in 2002 (locally as well as globally), the real estate landscape changed radically. In Dubai with the advent of the freehold era, a gold rush began which accelerated the process of urbanisation. In the process, developers — devoid of capital — started selling dreams of off plan real estate, attracting investors from the second group.

This itself mutated to include a large category of speculators. In this process, a building boom — seen in many other major cities of the world at different times of history — began. During this process, rising asset prices helped spur capital creation and investors flocked to fund new developments and communities.


Eventually, this became a bubble that burst in 2008, leaving behind some investors that were burnt. In the same saga, however, a raft of regulatory measures were introduced that protected investors, cracked down on defaulting developers and created a mechanism for reviving stalled projects, thereby putting into place the seeds for a revival.

So, in 2011, the process began again. Even as major developers increasingly started to dominate the transnational landscape — as investors voted with their feet and went with developers that had a track record — off-plan financing remained at the core of the real estate manufacturing landscape. Project financing was off the table for the vast majority of developers, with the consequence that as regulators started asserting themselves in a more effective manner, the gap between expected and actual supply started widening every year as smaller developers increasingly were unable to fulfil their commitments.

With escrow arrangements in place, this cycle ensured that investors were far more protected than in the first. But asset price rises still meant that underfunded developers could get away with marketing gimmicks for a while.

The slowdown in the economy starting in 2014, alongside a regulatory regime that became first-rate by international standards, meant the days of real estate obfuscation were drawing to a close. Even then it required a decisive move on the part of the authorities to demonstrate their effectiveness and intolerance to practices that were in earlier times considered acceptable.

This has now happened, signalling a decisive change in the regulatory stance, that promises to once again change the freehold dynamics as we know it.

Market schemes

The Schon saga in a sense marks the end of an era of the buccaneers — the cowboy developers who both imagined the city as well as helped build it, underfunded though they were. The reliance on off-plan financing, with its myriad marketing schemes, draws to a close.

In the end, those who failed, rightly so, paid a price for their actions. Their self destruction, and the increasing strength of the regulators, has now paved the way for a new breed of visionaries.

As we usher in the dawn of a new age, supply concerns will abate further. But the supply pipeline that remains will be definitive, institutional, and diverse. But even as we transition into this era with the developers that have fallen, the city that has built up around them barely registered their loss, continuing to grow from strength to strength.

Few could have imagined this even at the start of the freehold boom in 2002. What made the difference was a combination of many acts of imagination, supported by a great deal of advertising, some deceptive by these errant developers.

But these efforts gave the city the elements needed to thrive. An entrepreneurial heart had at its core a never-say-die attitude.

In the process, this improbable place — the grand metropolis that never should have been — moved inexorably from the margins to the centre of world commerce.

— Sameer Lakhani is Managing Director of Global Capital Partners.