Dubai's economic boom to spread to its neighbors

Doha and Abu Dhabi are the cities which will be the next to benefit from a wave of investment and development.

In Doha a forest of new towers is already beginning to emerge in the city centre; Abu Dhabi's 21st century vision is still in the planning stage, but the models of a $7 billion new city are even bigger than anything seen so far.

Emaar Properties recent tie-up with Saudi Arabian partners to develop a $25 billion new city outside Jeddah is the latest mega-plan to be rolled out in the region. Elsewhere, large new development projects have been announced, but they do not yet come up to same level of vision for the future.

Perhaps when Kuwait emerges from its period of official mourning we can expect to hear more about its urban development plans. There could also be a new vision for Beirut if Lebanon emerges from its current political troubles.

Free market forces

In the vanguard of this huge real estate explosion is the conversion of the Middle East to the benefits of a free market in property, or at least something adapted from global models to local circumstances. This has freed up a vital sector of the economy for investment.

It is easy to forget that before the May 2002 decision to introduce freehold property ownership for foreigners in Dubai, the real estate sector in the Gulf States was pretty moribund. Restricted ownership patterns controlled the market and kept real estate prices below their market potential.

Now the genie is out of the bottle, and it will never be put back. And it is not so surprising that other countries should want to emulate this remarkable economic reform.

Future correction

The danger is that speculation in real estate will create an artificial market with too much supply and prices overshooting on the upside. This creates the conditions for a boom-to-bust cycle, which has indeed been the typical pattern of real estate around the world since civilization began.

Indeed, it is probably inevitable that a boom will be followed by a correction at some stage in the Middle East. But with oil prices stronger than ever, and oil supply now a critical issue, this day of reckoning could be further away than many realize.

In the meantime, freeing up controls on real estate ownership, and allowing innovative companies to create a new market, is going to be an irresistible force in boosting the long-term performance of Middle East economies, and should be welcomed by all as a means of securing regional prosperity.