| Editor’s
Desk
Make housing affordable
The World Bank has projected that world trade volume would
contract 2.1 per cent in 2009, the first decline since 1982.
Still, the world economy in 2009 would escape recession, a
contraction in activity unseen since 1945. According to the
report, developing countries’ economies would likely
expand at an annual pace of 4.5 per cent while wealthier,
developed economies are expected to contract 0.1 per cent.
The report forecasts that the Middle East and North Africa
region would grow at a rate of 3.9 per cent, much lower than
5.8 per cent it had grown in 2007 and 2008 expectations. The
GCC economic growth rates as a whole, which have grown at
high rates of over 5 per cent in the recent past on the back
of high oil prices and estimated to have grown by around 7
per cent in 2008, are likely to take a hit as a result of
the reduced demand of oil and consequent fall in oil prices
and expected to grow at around 4 per cent in 2009.
From 2010 onwards, the current forecast is for a slight rebound
in oil prices and an improvement in US and European growth,
which will buoy confidence generally.
The global economic downturn is expected to reduce world
oil demand by 0.2 per cent to 85.7 million barrels per day
(bpd) in 2009, Opec’s latest oil market report said.
The worsening world economy is expected to have a “strong
impact” on oil demand
next year especially in the Organisation of Economic Co-operation
and Development (OECD) countries.
The Opec forecast says there will be a contraction in the
first half of the year, resulting from a huge decline in OECD
oil demand.
If oil is likely to hit $ 30, the conequences could be fatal.
For the GCC, 2009 nominal GDP growth would look horrible (-30
per cent year-on-year), and both the current accounts and
budgets would fall into deep deficits (around 15 per cent
of GDP), as per analysts at ING. ING said if this scenario
does arise, GCC countries would still be well-placed to boost
their gross domestic product (GDP) figures because of their
considerable fiscal power which is the result of the acquistion
of foreign assets. However, we, at CONSTRUCTION WORLD, believe
that oil at $30 would have disastrous consequences for UAE
and particularly Dubai.
So is all lost now? Every challenge offers innovative solutions.
One issue deserving the attention of the authorities is that
failure to contain inflation has set back many investment
plans in the UAE. Despite the availability of ample land resources
why are rentals high in Dubai? Why cannot they be contained
to make living easy particularly at a time when insecurity
of jobs is putting Dubai out of bounds of sorts.
Look at the brighter side: With demand easing up, prices
of all commodities are coming down. Second silver lining is
that since all building material costs are coming down, the
project costs will come down substantially. Thirdly, labour
is freely available due to the slowdown all around.
Hence, if real estate prices can be brought down to reasonable
levels, if developers can revise rates, and if banks can adjust
loan instalments by extending them and by reducing the payouts
in the initial period, much of the anxiety caused by the liquidity
squeeze can be sorted out.
Dubai must plan to make housing affordable in 2009 if it
wants to retain its talent pool. Projects for affordable housing
could be introduced where the government could offer land
at cheaper rates or on PPP (Public Private Partnership) and
even offer apartments on affordable rentals. This has been
successfully done in China, and India too is experimenting
with it.
The only other positive news of significance is that the
UAE is close to signing a nuclear deal with the USA which
would allow it to develop additional sources of energy. The
argument that nuclear energy should be used to generate power,
freeing oil and gas for export, is gaining acceptance.
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