I recently witnessed at the house of a Polish friend a card game that went on for hours and during which 20 players around the same table had to wait longish periods for their turn to play. I noticed that when the players were not “in” the game, they were deep in furious discussion. “What are they doing,” I asked. “They are making money,” my friend beamed.
He explained the scenario: Let us assume player A has a container of jeans he bought for $100,000. He will sell it to player B for $110,000. Although player B was warned that the jeans only had one leg. Player B still goes with the deal and wastes no time in palming the lot off on player C for $120,000, who also doesn’t hold onto it for too long before making his margin with the next buyer.
And so it goes round and round adding profit to profit, it all ends when one owner decides to actually open the container. He is faced with the reality not the perception, but for as long as it took for the container to sail from Bangladesh to Lodz, the jeans were a commodity whose value was left to the free-floating market forces.
The same thing is happening with Gulf property — that is not to say I must add that there is anything wrong with them structurally or that the bathroom tiles aren’t what they appear. It is just that there is so much development and so much liquidity that people are snapping up the option to buy even at the drawing board stage and the ownership of a home may change hands several times before the first human takes a shower or hosts the first dinner party. If the faucet explodes, the parquet floor warps or the landfill subsides, it will have had no bearing on the profits made in the previous couple of years it has taken to build the residence.
After that the commodity — for that is what it has effectively become — will slip into the mainstream property market and be subject to a different type of value and be more slave to the usual real estate checklist.
Like diamonds, if we can persuade enough people that a rock, or anything for that matter, has value and beauty and is desirable, we can then control supply keeping demand and prices high enough. In the UAE, the challenge is for the state to ensure that this new diamond, in the shape of a vibrant and shiny and exciting property boom, does not become tarnished. But seeing what the Emirates have achieved so far, it is fair to assume that the cities built out of the sand and the sea will not loose their luster.