Dubai: Another Ponzi Scheme Collapses
January 4th, 2009
Via: CBS News:
Over the years, booming oil prices helped turn Dubai into a land of opportunity and playground for the ultra rich.
But that was then and this is now. And as CBS News correspondent Sheila MacVicar reports, even Dubai is feeling the pinch of the worldwide economic crisis.
The gulf city state’s property prices went up as fast and as high as the towering buildings. But reality has suddenly intruded.
One investor said it was as if someone had thrown a switch, as the global credit crunch slammed a city that was, in effect, the world’s biggest construction site
It took just 20 years for Dubai to go from a desert outpost with a handful of office towers to a world metropolis, where one fifth of the world’s cranes operate, and property became a very hot commodity, with some people playing real estate the way others play poker.
“People were buying and flipping properties on a launch basis,” says Manesh Khadri of Century 21 Real Estate. “You launch a property and you flip it within the same day.”
Before an apartment was even built you could away with tens, or even hundreds of thousands of dollars.
Developers promised: Pay $140,000 for an unbuilt apartment, and within six months, reap a $46,000 profit. So as fast as the city expanded, investors snapped up the real estate, taking on big debt.
American Internet entrepreneur Mahmood Panjwani understands the risk of building a business
But, “I really did not know what risk was until I came here,” Panjwani says. “I mean Dubai is like Silicon Valley on steroids from a risk perspective.”