What’s happening in Dubai reflects a larger trend that many in the West, distracted by chaos in Iraq and terrorism in Saudi Arabia, have failed to notice. For all its troubles, the region has seen a huge boom in real estate and equities. Financiers say the rise in prices has been driven largely by Arabs bringing billions home from America, to escape post-9/11 counterterrorism measures that, in effect, target them and their money. But that’s not all: “9/11 did to the Arab world what no Arab government nor the Arab League could achieve for the past 50 years,” says one of Jordan’s leading entrepreneurs. “It got the Arabs to finally invest in the region. Some money came back from the West, but more importantly, the oil-price windfall profits have remained here.”
Nobody has published reliable estimates of how much Arab money has fled the United States, but it’s clear that vast sums are flowing into the region. Throughout the 1980s and 1990s, with oil prices low and Arab money eager for the high returns available in the United States, liquidity was as hard to find in the Middle East as water in the desert. But in 2003, the trickle became a raging flood: the Saudi stock index jumped 76 percent; Kuwait’s rose 102 percent; Egypt’s, 152 percent. The property boom is most striking in Dubai, but extends to Beirut, Cairo and Saudi Arabia, where prices for prime real estate rose by as much as 100 percent last year. Even trackless desert sells well in the vicinity of a city like Riyadh, which has grown from 600,000 people in 1982 to 4.2 million today.
Paradoxically, the fear of political chaos in Iraq and Saudi Arabia has helped fuel the property boom–by pumping up the oil prices that underwrite the regional economy. The monarchy has cranked up stalled infrastructure projects, raising government spending by more than $7 billion. It also increased the money supply by 9 percent in 2003, and an additional 7 percent in the first quarter of 2004 alone. At the same time, Saudi telecommunications, cement, industrial and banking companies were showing solid fundamentals, attracting even more money to both stocks and real estate. “Both markets bubbled,” says Nahed Taher, an economist at the National Commercial Bank in Jidda.
In May, it looked as if the Saudi balloon might just burst. The Saudi shares index hit a record high on May 17, only to crash by 15 percent over the next 10 days. The market has since rebounded and is up 26 percent this year, but can this last? Stephen Glain, author of “Mullahs, Merchants, and Militants: The Economic Collapse of the Arab World,” says the narrow range of investment options in the region tends to channel money flows, exaggerating boom and bust cycles: “Those hideous villas you see going up, they tend to be a leading indicator of collapse.”
For now, the mood is still good to go. Ten thousand people registered to buy the first 2,400 apartments on Palm Island. Many apartments and houses put on sale last year (starting at $200,000-plus) have already been resold, though none will be completed before 2005. Lately high-profile foreigners like English football star David Beckham have been buying on the island, hotting up the market. At a development next to Palm Island, called “The World,” customers can buy their own private island, or “country.” But so long as Arab money doesn’t feel safe in America, one nation they won’t be buying is the United States.
