Trapped: A Couple's Five Years of Hell in Dubai

by Lee, M

  In those early months of 2008 the Dubai property market reached its peak; some apartments and villas increased in market value by 10 per cent in a week and development plots were not far behind, which added to the frenzy of speculators buying and flipping plots. Anyone with even the most basic knowledge of boom-and-bust cycles throughout history could see this was unsustainable, but the uppermost decision-makers in Nakheel and Dubai World continued to act as if there was no tomorrow.

  Dubai World’s investment arm had already forked out billions for luxury hotels and other big-ticket items in the US and UK. Now its purchases became properties bought for hundreds of millions of dollars at the top of the market. These investments felt random: they included the iconic but struggling US department store Barneys New York (USD825 million, a price some commentators declared to be double what it was worth), warehouse development company Gazeley (GBP300 to GBP400 million) and 20 per cent of Cirque du Soleil (USD600 million). Even Donald Trump had been roped in, lending his name to the mooted ‘Trump Tower’ project that was going to be built on the ‘trunk’ of Palm Jumeirah.

  Nakheel and Dubai World weren’t the only ones throwing money around. Sunland, who were already committed to a number of huge developments in Dubai, wanted to acquire still more land. The company had decided one of Dubai Waterfront’s plots was the perfect spot for the planned Palazzo Versace hotel. They were already building the Dubai Versace hotel close to the city but wanted another to capitalise on the boom. The plot they had in mind wasn’t actually for sale — it was in a quadrant called Precinct E, which was due to be rolled out to the market at some future point. But, as companies sometimes did, they chanced their arm and made an offer.

  As part of the normal process I prepared a report for the development board to consider, containing Sunland’s offer, our valuation estimate and information on the planned timing of developer access to the plots in that area.

  Chris O’Donnell came back to me and said, ‘I don’t think that’s a good deal. I think we’re going to hang on to that plot of land for a while.’

  I sent an email to Sunland letting them know and in response got a call from an angry Abedian.

  ‘We’ve had our investors involved — our Italian investors from the House of Versace have been here — how can you do this to us?’

  ‘I haven’t done anything to you, Soheil,’ I said. ‘I put up a report to the investment committee and they rejected the offer.’

  ‘Who rejected it?’ he demanded.

  I said, ‘Chris O’Donnell, he’s the head of the investment committee. If you don’t like the answer he’s the one you should speak to.’ I didn’t hear any more about it.

  In April, my parents, Carol and Allan, came to visit us, marking their first major overseas trip in 30 years. Allan had been diagnosed with bowel cancer more than three years earlier. He’d been receiving chemotherapy and appeared to be in remission, so they decided to make the most of it by taking a trip to France, England and Scotland and stopping in to see us on the way.

  They stayed at our place for a week and we showed them around Dubai, including the shopping malls, the gold souk (market) and the historic Hatta village and fort. It was wonderful to see them. They really enjoyed the stay and it was clear how proud they were of us and how well we were doing with our careers — we’d come a long way since they waved us off in that old Corolla in 1987.

  This was also the year Julie and I finally made our dream of buying a place in Balmain come true. We followed the old property rule of maximising the money we had to spend by buying the worst house in the best street we could afford. Searching online, we found a one-bedroom worker’s cottage with an attic converted into a spare room. Technically, it just edged into Birchgrove, a suburb with typically even higher returns on investment than Balmain.

  We couldn’t get back to Australia to see it ourselves, but that was fine — we knew the area very well and had kept up with house sales so we also knew how it sat in terms of the market. My mum went along to an open house and confirmed all was as it appeared in the photos, and we had an engineer’s report done, which confirmed it was sound. Given the salaries we were on, Australian banks were keen to lend us money, but we didn’t feel comfortable with three mortgages, so we sold one of the units on Chevron Island to our friend Rosemary.

  We lived on Julie’s salary and put almost all of mine into the Birchgrove mortgage, along with the rent the house earned. I also received a nice bonus in 2008, as most Nakheel employees did, so midway through the year we were able to deposit another quite large sum into that account. Things were working out well. The pain of having to put up with the general craziness of Dubai and working at Nakheel was paying off.

  JULIE

  Working in Australia, neither Marcus nor I had ever been paid a bonus on top of our salary, but many expats we were working with in Dubai took it for granted that they would get them every year. I was the opposite — so surprised the first time it happened that I assumed it was an error. I received a text message alerting me to the fact that Showtime Arabia had paid an amount into my account that clearly wasn’t my salary. I went straight to my boss, saying, ‘I think there’s been some kind of mistake.’ She said patiently, ‘Julie, that’s your bonus.’

  As with most things, it was all done on an entirely different scale at Nakheel. There, bonuses were paid according to how effective your performance was rated in your annual review, expressed as a percentage, and took your role and responsibilities into consideration. In mid-2008 Marcus was rated 100 per cent and got a six-figure bonus. It was an amazing windfall, and, eager as we were to reduce our loans, it went straight into the Birchgrove mortgage account.

  We were two-thirds of the way through our time in Dubai and everything was coming together. It had been a leap into the unknown for Marcus to take the job, but all the upheaval had been worth it. By the time we got back to Australia we would be able to sit and have a beer out the back of our little cottage, the fruit of all our hard work. I started to feel like we could allow ourselves a bit more relaxation and enjoyment. We began to plan a trip to Italy.

  Jackie and Justin and one of my colleagues at Showtime, John Chimenti, had recommended Cinque Terre in Italy. This is a beautiful region of five villages strung out along the rugged coastline overlooking the Italian Riviera. We’d have ten days — not very long, but longer than our last trip.

  We thought of it as our planes, trains and automobiles tour: plane to Rome, train to Cinque Terre, then a hire-car to Venice via Maranello. The first few days Marcus may as well have still been at the office, it was just work, work, work. His phone didn’t stop. In every picture I took of him in Rome, he’s on the Blackberry: looking over Circus Maximus, outside the Colosseum, walking past the Trevi fountain, always dealing with some work problem or another.

  It wasn’t until we arrived in Monterosso, one of the Cinque Terre villages, that the peace and beauty persuaded him to sit back and enjoy. The special atmosphere seemed to envelop us almost from the moment we arrived and Marcus started to ignore his Blackberry. No cars are allowed into the towns, so you can wander around at leisure, which is what we did on the afternoon we arrived, stopping to sit in small piazzas drinking beer and finally really relaxing.

  On our first morning there we woke a bit late, feeling the effects of an indulgent night before. We were on holidays after all. We took ourselves out into the fresh air and looked at the gorgeously clear sea. Wandering through the little town we saw a few people walking up a trail to a headland. It looked nice, so I suggested we investigate. We didn’t realise that this was the start of the five-town, thirteen-kilometre walk from Monterosso to Riomaggiore. As is our way, though, once we’d started we just kept on; we were going to finish the walk.

  It was tough going. The path narrowed and for each downhill section there was a harder climb up the other side. We passed a couple on the path and I noticed the lady had an injection pump system at her stomach, indicating a medical condition of some severit
y. I thought to myself, ‘What an amazing woman’. Further along we slowed down and they, in turn, passed us. A bit further down the path we got talking to them and found out they were fellow Aussies called Renae and Darryl (‘call me Dazza’). They’d left their children with the grandparents and were having the trip of a lifetime and Renae’s diabetes wasn’t going to stop them. I was reminded of Allan’s determination to enjoy his trip with Carol despite his cancer.

  The views on the walk were spectacular and we ended up walking the entire rest of the way with our new friends. At each town Marcus and I stopped and bought something for our tiny new house in Sydney. In Corniglia we bought a ceramic ‘3’ to use as our street number and further on we bought an ornate coat hook. It was a wonderful day with wonderful people. One of the great days you have in life.

  That night, we met Renae and Darryl at a restaurant in Monterosso that had been recommended to us by another visitor. We had a terrific time. We ate lots of fantastic pesto, laughed a lot and met an American pilot who joined us for drinks. When no-one round the table could answer the trivia question, ‘Who was Iceman’s wingman in Top Gun?’ Marcus pulled out his Blackberry — for fun, not work this time — and got the answer: Slider.

  The next morning we had to leave Monterosso but we promised ourselves we’d be back and we’d stay for longer.

  MARCUS

  By mid-2008 the US property market had been in freefall for well over a year and the American economy was well into recession. Credit was all but frozen through America and much of Europe, where unemployment skyrocketed as the Global Financial Crisis took hold. But in Dubai the hubris was worse than ever.

  In early October, Nakheel announced plans to build its biggest project yet, Nakheel Harbour and Tower, with a one-kilometre high skyscraper as its centrepiece. Planning for this project had been going on for more than two years. Originally it had been a way to out-do a rival company, Emaar’s, 800-metre high tower and over time it had evolved into a mammoth undertaking with another 40 or so 50- to 100-storey towers around it, in order to maximise its value.

  The Gulf News reported Chris O’Donnell saying that the timing was fine for a project of this size because the impact of the GFC on Dubai had been ‘relatively small’. He wasn’t entertaining any talk about a recession: ‘The world is experiencing a negative market movement. But this is just part of a normal economic cycle,’ Chris told the paper. I saw a subsequent media report in which Chris was asked if Nakheel and Dubai could afford such an expensive project. He replied along the lines of ‘We wouldn’t be launching it if we didn’t have the money for it.’

  Less than three weeks later Dubai’s economy crashed. By October 2008, its stock market had lost an incredible 44 per cent of its share value compared to its position at the start of the year. Twelve weeks later, that figure would be 70 per cent. The ‘unthinkable’, which was in fact blindingly obvious for those who cared to look, had happened. The credit collapse hit and Dubai ground to a halt overnight, almost literally.

  JULIE

  Within a week construction sites that had been swarming with labourers were empty. The diesel fumes from the site generators had been a constant the whole time we were in Dubai. You could actually taste the difference in the air between the Sunday-to-Thursday working week and the weekends. Now, all of a sudden, there was weekend-like air quality every day. Traffic on the roads thinned out. Previously new billboards would appear all the time along Sheikh Zayed Road advertising glossy new property developments. That stopped. The effects were all around. You couldn’t help but see that something major had happened. The government line in the media was ‘everything’s fine and Dubai was in great shape’, but no-one was fooled.

  As the weeks passed and it became clear things were only going to get worse, many expatriates just left. The recklessness that characterised Dubai — the low value placed on other people’s lives, the lack of sound business practices and all the rest of it — had infected a lot of the people who came to work there. They over-extended themselves, spending huge amounts of money on flashy cars, designer clothes and off-the-plan properties which they planned to flip for a quick buck. It was all done on the assumption that the good times would never end. But when everything crashed they were in serious trouble. Under Dubai law, defaulting on a debt is a crime punishable by a jail sentence. If you couldn’t make a credit-card payment you could end up behind bars.

  Knowing that, a lot of expats just took off. They walked out of their villas or apartments with only what they were able to carry or quickly arranged to ship their possessions, got into the trophy cars on which they still owed money, drove to the airport, parked, left the keys in the ignition and flew out. If they ever set foot in the UAE again they knew they would be treated as criminals but none of them were ever going to return. They did this in their hundreds, week after week.

  Sales at my work slowed down, but I wasn’t too concerned about my job security. After surviving the ‘recession we had to have’ back in Australia, I knew that pay-TV is cheap entertainment and would be one of the last things to be cut back, especially in Dubai where free-to-air TV was dismal.

  At worst, we only had another nine months there, then Marcus’s contract would be over and we would be back in Australia. I’d already started contacting pet exporters to make sure I knew exactly what steps were needed to get Dudley out when we were ready to go.

  My contract with Showtime would finish at the end of June 2009, which was perfect. I calculated that it would give me a month in which to take care of packing up our stuff and arranging all the details before Marcus’s three-year period expired.

  We had definitely thought about coming home early, even before the GFC hit. Neither of us enjoyed life in Dubai. Not long before, I’d listened in disbelief as a British guy talked about how much he loved it there. ‘This place is so amazing, there is no place better in the world,’ was his view. ‘Where else can you go sailing then go shopping in a great mall and live in these amazing apartments? And the weather is so great, it never rains.’

  Marcus and I were looking forward to getting home but our view was that you finished what you started. We’d made a commitment and we would honour it. That’s how we’ve always seen things. Whether it’s going through university or Marcus training for a triathlon, it’s the same principle: you don’t let yourself down. You keep working away to achieve whatever you set out to do. Having said that, we thought that the way Nakheel was going, there was a good chance Marcus would be made redundant before the contract ended. If that’s the way it was going to pan out, that would be fine with us.

  MARCUS

  The big, bold talk about Nakheel and its future continued, but the behind-the-scenes reality was different. A good example was what happened with Palm Canal Towers. This project was supposed to kick-start construction at Dubai Waterfront where nothing of any note had actually been built yet. Being first was a very big deal in Dubai; so if Nakheel began building in Phase 1, sub-developers would supposedly rush to start their own projects in the hope of beating us.

  I’d been overseeing the conceptual design and feasibility process for Palm Canal Towers. I’d adhered to all the normal procedures — made the business cases for funding and sign-off by Nakheel’s investment board. The next step was to draw up the building contract and we were waiting to get this formalised. Everyone was eager to move forward with a project we thought was actually achievable. But a few days after taking the documents in to Chris, I got an email from him asking how we could withdraw from the contract with as little consequence as possible. The funds that had been allocated for the project had dried up. As The Hindu newspaper would put it, ‘The real estate bubble that propelled the frenetic expansion of Dubai on the back of borrowed cash and speculative investment [had] burst.’

  In the boom days, financiers had offered to fund Palm Canal Towers as a stand-alone project. This sort of financing was good for both the developer and financier. From the developer’s perspective, they would always
have a source of funds and from the financier’s, those funds could only be used on that project, not disappear into a ‘black hole’ for general use. But KT had squashed these offers, insisting that he only wanted financing at a group level. Now, of course, all the offers of financing had ceased, for individual projects as well as company-wide investment.

  The money Nakheel had relied on was from a far more erratic source. When I joined the company, I saw queues of people gathering outside the sales office even in the height of summer. They were there to put deposits on any project the company offered. They couldn’t wait to hand over 10 or 20 per cent and sign up for the agreed schedule of payments as building progressed. Nakheel had been paying its running costs through these scheduled payments.

  But when new buyers disappeared, the value of the property people had already agreed to buy tanked. It dropped and dropped, eventually down to around a third of its peak price. By late 2008 there was no market. No-one was buying, no-one was selling. Property in Dubai just totally stalled. In the same way that expatriate execs walked away from their debts by leaving behind furnished apartments and cars, property buyers walked away from the debts they had committed to or defaulted on their payment schedules. The more times a property had been flipped, the more likely this was to happen. By defaulting they would lose their 10 or 20 per cent deposit, any ‘premium’ paid and any further instalment payments they had made, but for many this was better than throwing good money after bad.

  Nakheel, though, still had obligations. To the buyers who did keep up their payments, Nakheel had an obligation to deliver a finished property. To the sub-developers who still intended to build on the plots they had purchased, Nakheel had an obligation to complete all the necessary infrastructure. And to the companies it had contracted to do construction and supply other services, it had an obligation to continue to pay for work being done, and pay monies owed for completed work. But now it had to do all this without the cashflow from the formerly eager buyers. No wonder Chris was so anxious to get out of the Palm Canal Towers contract, along with most other agreements.