Those who demand confessions — and concessions — from others must be willing to offer some of their own. Accordingly, here are a few that readers have pointed out to me, as well as my attempt to justify my line of thinking.
Real estate prices in Dubai have fallen, even if we correct for the measurement bias inherent in indices. And despite stimulus measures, have thus far failed to respond.
Furthermore, most developers have struggled to increase their profits, and in spite of offering payment plans as a way of incentivising the purchase, have been constrained in their ability to deliver supply pipelines in the timelines that have been stipulated (as liquidity preference has increased).
Despite the rise in JDA (joint development agreements) and other types of consolidation, the rise in transactional activity has thus far not been able to correspond to rising profits or prices. Analysts have changed their tune to attacking all sorts of mechanisms, such as reducing the level of downpayments stipulated by the UAE Central Bank to other measures such as limiting the number of launches — in effect preaching a brand of socialism — in attempts to revive prices.
In their earnest self-righteousness, they have resorted to a form of staccato journalism, which reminds me of an old phrase, roughly translated as“stop rattling that tea kettle in my face”.
Many of the analysts who have come up with such commentary are not old enough to remember the waves upon waves of similar analysis that has been part and parcel of the city’s narrative throughout the 1980s, 1990s, and the beginning of this century. Like many of the young, they have learnt their history from social media outlets, focusing on instant solutions rather than a long term pragmatic approach.
At each stage, whether throughout the Iran-Iraq war, the first Gulf War, the Asian contagion, or in the aftermath of 9/11, commentators encouraged for a relaxation of regulatory measures as a way to revive demand. To be sure, there is always some utility in adopting this line of thought.
Dubai, however, has led the way in taking bold measures historically, which increased economic efficiency, capacity and flexibility, despite the geopolitical challenges that have always flared in the background.
The process of capital formation, by its very definition, is a long term one. It can only function when there is enough room given to the private sector to marshal financial resources given the right profit motive. And despite the speculative excesses that are part and parcel of such enterprise, instill resilience to withstand the inevitable downturns that are part of the business cycle.
Throughout history, analysts and commentators, in their pursuit of spurious economic equilibrium, have advocated interventionist measures without having adequate appreciation of the long-term effects that such policy measures accrue. This is not to say that a capitalist economy can sidestep downturns.
However, the process of capital formation (and erosion), is what the famous economist Joseph Schumpeter called part of “creative destruction”; the very process that has spawned the rise of Silicon Valley, the financial centers of New York, London, Singapore, and Dubai as they race towards incubating the industries of the future.
These cities become “players in their own history”, and they only do so when the raw materials (that is to say the active presence of skilled human capital) conspire with the geographic landscape to spawn empires of the mind.
Yes, asset prices have fallen, as they have in every downmarket cycle. Yes, this cycle appears to be more challenging than the ones that preceded it, but that is only due to what psychologists call the “recency” effect. Yes there should be more reforms, and many of the suggestions being offered are conversations that we should have to “upgrade” our framework in response to the headwinds.
The challenges of every business cycle are unique, and in this cycle, there are multiple factors at play. However, this narrative ignores the fact that every down cycle has been followed by periods of optimism and growth, where prices have continued to scale new heights.
Cheaper asset prices, therefore, are good for the investor, just as department store sales are good for the consumer. To ignore its history and impact is to indulge in pedestrian thinking; a form of pathological over interpretation born of anxiety.
In Dubai, as is the case most of the world throughout history, business formation and asset acquisition serve as the best way of creating wealth. Commentators ignore this rather obvious fact, rendering their criticism hollow, rather than insightful.
This goes to the heart of what analysis and decision making should achieve, as Susan Sontag pointed out. The aim of all commentary should be to make history, and by analogy, our own experience, more real.
The function of criticism should be to show what the world is and how we should act in it, rather than what the latest piece of history means.
Sameer Lakhani is Managing Director at Global Capital Partners.