Dubai’s palm islands rise as oil sparks boom
Beachfront playground for super rich
When they were first conceived, Dubai’s palm islands were almost too audacious to be real.
Dredged up sand from the bottom of the sea and trucked in rock blasted from nearby mountains would be used to build a trio of islands shaped like palm trees on the coast of the Persian Gulf.
The developments, overseen by state-owned developer Nakheel, were supposed to house tens of thousands of people, offering beachside properties to lure wealthy residents from European capitals as Dubai looked to cement itself as a leading tourist destination.
Today Palm Jumeirah, one of the three islands, is the city’s playground for the ultra-wealthy. It attracts droves of tourists to its beaches and hotels, such as Atlantis and the Burj Al Arab.
The island helped attract over 7 million international visitors to Dubai in the first six months of the year.
But the government’s island ambitions have not been fully realized. Two of the three islands were left unfinished after the global financial crisis — victims of the credit crunch that swept the world.
Dubai’s property prices fell by as much as 50 per cent in the crash and $612 billion worth of construction projects were put on hold or cancelled. The city was ultimately unable to meet its debt obligations and was forced into a $26-billion bailout from the United Arab Emirates.
Now, however, the final two palm islands are being revived. After more than a decade on the sidelines, more ambitious plans are receiving renewed interest amid an influx of wealthy Asian billionaires, as well as Russians looking for places to park their wealth in the wake of international sanctions.
The Financial Times reported that Nakheel has contacted investors offering to buy back their contracts for plots so they can start work again. Palm Jebel Ali, one of the two islands, is set for new building projects after a refreshed management team at Nakheel applied for approval to build properties on the island.
Palm Deira has not yet been properly formed on the coastline. It is set to be populated with commercial, residential and hospitality projects, when its foundations have been cast.
Taimur Khan, head of research for the Middle East region at CBRE, says there is a renewed focus given the lack of available land elsewhere. There are a dwindling number of beachfront plots available to serve the latest wave of wealthy clients looking to find a base in Dubai.
Khan says: “We’ve sort of used up the extension that was already provided to the beachfront. There are now only a handful of quality plots available on the beach to develop.”
In the post-crisis years, developers focused on inland plots that were less risky and expensive, allowing for the construction of more affordable properties alongside luxury homes.
Khan says: “There’s been a bit of pain, but we’re getting to a stage where the market is doing very well here.”
The energy crisis is benefiting Dubai because of the huge economic uplift in neighbouring economies such as Saudi Arabia, home to the world’s largest oil company Saudi Aramco. The International Monetary Fund recently said Saudi Arabia is set to be one of the world’s fastest-growing economies this year on the back of surging oil prices, with its GDP rising by an 11-year record of 11.8 per cent in the second quarter of 2022.
Dubai is not seeing a direct benefit from soaring oil prices as the city’s economy largely relies on the real estate and tourism industries. The UAE GDP, which stood at $644 billion in 2019, fell by more than 10 per cent in the pandemic as tourism was restricted.
The palm islands themselves were conceived by Sheikh Mohammed bin Rashid al Maktoum as a way to attract attention to Dubai as its oil supplies dwindled.
However, Khan says the wider jump in commodity prices “obviously impacts sentiment” as oil price rises increase regional economies’ capacity for investment, tourism and trade.
The unfinished islands are some way from being presentable, although they are not completely devoid of infrastructure. They have roadworks and some retail units on the land. But they are still daunting projects for developers compared with the built-up areas inland.
“These are man-made islands, the infrastructure costs are significant,” Khan says. “The ingenuity required to develop them is significant, and if you are building inland it’s not as difficult.”
Development will see additional infrastructure added before homes and hotels can be added in phases, according to the level of demand.
The latest wave of development comes amid a wider push to make the metropolis a more pleasant place to live so it might be able to attract more permanent residents.
Khan says: “Dubai did some audacious stuff in the early days, but they have been calculated about what people actually want and what they aspire to.”
With vast expanses of land yet to be reclaimed from the sea before progress can be made, it will still take decades of work before the islands are ready to be presented in their final form.