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An Assignment on Dubai Debt Crisis 2009

An Assignment on Dubai Debt Crisis 2009

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Published by: rashrahul77 on Jan 27, 2010
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08/26/2010

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An assignment onDubai debt crisis 2009 &their impact on global Economy
 Under the guidance & supervision Submitted by :Of D.r. R.L. Chawla Shankarshan sudershanShahnawaz .A.S.Shovit singhSambit senAlin GangulyDeepankar kataria
S
 
ection– B
 
What is Dubai Crisis?
 
The Dubai Debt Crisis 2009 has been called by economists a consequence of real estate bubble burst when on November 26, 2009 Dubai proposed to delay repayment of its debt whichincludes delay in the payment of $ 59 Billion debt on Dubai World, the investment vehicle for the emirates for 6 months.
Dubai's Economy:
 
Dubai has one of the most unique and unusual economies in the world. Dubai has numerousfree zones including Jebel Ali free zone, Dubai Maritime City, Dubai Internet City, and DubaiMedia City.
Contrary to the general assumption that Dubai's economy is totally driven by oil and gas,It is afact that oil sector only comprises less than 6% of the economy of Dubai.
In fact, Dubai's portion of natural gas revenues in the United Arab Emirates is only about 2%.Dubai's oil production is estimated to be about 240,000 barrels per day.
It is true that Dubai's economy was built on the back of Oil Money but Dubai's oil reserveshave diminished significantly and are expected to be exhausted in 20 years.
The other largest contributing sectors of Dubai economy are
Real estate and construction(22.6%),
trade (16%), (15%) and financial services (11%) (all are 2007 figures).
Diversifying to Real Estate:
 
In 2000, Dubai Financial Market (DFM) was established. It was established as a secondarymarket for trading securities and bonds, both local and foreign. During that time theGovernment decided to diversify Dubai's economy from a trade-based, but oil-reliant, economyto one that is service and tourism-oriented has made real estate more valuable.
The orientation towards tourism and service led the economy towards
Real Estate Boom
andthe result was appreciation in the property prices from 2004–2006.
Dubai became a center of large scale real estate development projects and this led to theconstruction of some of the tallest skyscrapers and largest projects in the world such as theEmirates Towers, the Burj Dubai, the Palm Islands and the world's second tallest, and mostexpensive hotel, the Burj Al Arab.
Thus Dubai landscape started changing. Earth movers crawled alongside massive cranes andtrailer trucks loaded with steel and concrete. The Dubai story began to unfold, rapidly.
 
For many years, Dubai has been a safe haven for investors offering fantastic returns of 40% plus per Annam and in recent years has attracted clients who have been trying to get on theinvestment ladder.
 However the ugly face of the so called "Dubai Model" which was based upon debt and  speculation, was hiding somewhere in the breakneck boom.
What is Dubai World?
 
Dubai World is an investment company that manages and supervises a portfolio of businessesand projects for the Dubai government across a wide range of industry segments and projectsthat promote Dubai as a hub for commerce and trading.
The chairman of this company is Sultan Ahmed bin Sulayem.
Dubai World was established under a decree ratified on 2 March 2006 by Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates andRuler of Dubai. He also holds the majority stake in Dubai World.
Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage toLondon-traded bank Standard Chartered Plc and luxury retailer Barneys New York throughasset-management firm Istithmar PJSC.
Major Reasons : Seeds of Trouble
Due to the ongoing global financial crisis of 2008-09, Dubai's real estate market experienced amajor downturn. This lead to the slowing economic climate.
It was declared in an international press council by Mohammed al-Abbar who is senior aide toDubai's Ruler and UAE's Vice President/Prime Minister, Sheikh Mohammed bin Rashid AlMaktoum and who serves as the Director-General of Dubai's Department of EconomicDevelopment, and Chairman of Emaar, one of the world's largest real estate companies inDecember 2008 that, Emaar had credits of US$ 70 billions and the state of Dubai additionalUS$ 10 billions while holding estimated 350 billion in real estate assets.
By early 2009, the situation had worsened with the global economic crisis taking a heavy tollon property values, construction and employment.
As of February 2009 Dubai's foreign debt was estimated at approx. USD 100 billion, leavingeach of the emirate's 250,000 UAE nationals responsible for 400,000 USD in foreign debt.
A longer-term assessment of Dubai's property market showed depreciation; some propertieslost as much as 64% of their value from 2001 to November 2008.

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