Willa Cather wrote that the literary world “broke into two” in 1922, when writers such as Virginia Woolf, T.S. Eliot, D.H. Lawrence and E.M. Forster invented the language of the future for the novel.
After decades of globalisation, it appears as if the world broke into two again — with the rise of localisation forces that culminated in the election victory of Donald Trump in 2016.
As sector after sector gave way to the forces of technological change, people were confronted with a choice.
Either embrace the radical forces of change, or leave the marketplace to make way for nimbler, younger players who could peer into the future with greater efficacy.
In Dubai and the UAE, this has manifested itself in the form of lower costs of doing business, as everything from asset prices to rents, to the costs of doing business has come down.
Attracting, retaining talent
Spearheaded by government reform, the challenge has been to continue to attract and retain talent from across the globe, even as the forces of “identity politics” sweep their way across the world.
The reforms that have been introduced thus far go a long way towards attracting that very pool of talent. Capital, on the other hand, is a different breed of animal, moved by qualitative forces such as sentiment and “animal spirits”.
When we look at the real estate sector, there is plenty of scepticism to be had, as prices continue to adjust in response to lower rents.
In a broader sense, this appears to be a re-allocation of resources from the landlord towards the tenant, as rent-seeking behaviour reduces. This is occurring against the backdrop of an economy that is making the transition to a tax-based system, unleashing a new set of dynamics.
In a broader sense, this appears to be a re-allocation of resources from the landlord towards the tenant, as rent-seeking behaviour reduces.
This is occurring against the backdrop of an economy that is making the transition to a tax-based system, unleashing a new set of dynamics.
Shaping a future recovery
How long this transition lasts is anybody’s guess. But it appears as if the recovery underway — driven by the “discounting model” — is the first step towards a more efficient utilisation of capital, as stakeholders adjust to a world of lower margins and liquidity.
Capital gains, in a macro sense, may be harder to achieve in the real estate sector (this statement is true for much of the world).
But as we look at specific communities, we are coming across instances where this is starting to materialise.
Obviously, in an economy that is still dominated by new-builds, and where the planning of projects went into overdrive after Dubai won the bid for the World Expo, the preference for capital allocation remains skewed towards areas where newer, smarter and more efficient construction is taking place.
Projects where the common areas are being more efficiently utilised, along with options for co-living and co-working are available will likely be the winners.
But it is equally true that in the older parts there is a gradual revival of interest in all sectors as plans are drawn up to re-allocate space in a more judicious manner.
These transition points are hard, and are accompanied with higher levels of scepticism and uncertainty. Even as regulatory reforms pave the road for easier ways of doing business, lower profit margins and heightened uncertainty implies that growth rates will be sluggish.
This will naturally spill over into lower levels of asset creation, especially as the focus shifts towards enhancing yields from existing assets.
On the horizon are lower global interest rates, which in it of itself stoke the fires of economic growth as the cost of money reduces. However, I remain convinced that the melting pot model that the UAE has embraced with vigour will overcome the political impulses of nationalism in the years ahead, as the economy continues to liberalise.
We have a rich history of adapting to the global forces of change.
This is perhaps the first time that we are on a journey where we are going against much of the narrative that the rest of the developed world is churning out.
Clearly, this is a bold strategy, and itself implies greater turbulence. The economic world may have broken into two a few years ago, but we are defying this narrative, and laying the ground work, both legally as well as economically, for a unified world view of tolerance and inclusiveness. While this road implies patience, it is this value that will be amply rewarded as history attests.
— Sameer Lakhani is Managing Director at Global Capital Partners.
