Sheikhs, Lies and Real Estate: The Untold Story of Dubai (18 page)

‘I’m sorry, Jonas, I’m really confused.’

‘You want me to spell it out for you?’

‘Yes please, if you don’t mind.’

‘Are you gay?’

I almost fell off the bed. ‘What?’

‘You know, gay?’

‘No, I’m not gay!’

‘I see. So I guess we’re not into the same
scene.’

‘No, not at all!’

‘Well, nice to hear from you. Call me if you
ever change your mind,’ he said before hanging up.

The suave image of Benito Valli dressed to the nines in a
tailored blue pinstriped suit and smoking a fat Cuban cigar featured on every
magazine cover in the city. ‘Meet Mr Property’, ‘Dubai’s property wunderkind’,
‘the self-made property tycoon’ read the flattering headlines. Benito played
the part of the archetypal millionaire playboy perfectly with his slicked-back
hair, sharp suits and debonair demeanour. He certainly seemed to have it all:
looks, style, wealth, success and gravitas. There were rumours that he was a prince
or the descendant of Italian aristocracy, or even the son of a movie star,
which he neither confirmed nor denied, serving only to perpetuate the mystique
of Benito Valli.

The unlikely poster boy of the Dubai property
success story, Benito was a young, smooth-talking Italian of 30 who arrived in
Dubai in 2003. A former investment banker, he spotted an opportunity to exploit
the dynamic UAE property market early. In 2004 he established the DCA Real
Estate Group, a new asset management vehicle that would invest on behalf of
celebrities, high net worth individuals and family offices into the incredible
growth of the Dubai property market. And an overnight success story was born.

After a few lucrative early investments for his
investors, Benito set his aim higher. By 2005, DCA began purchasing entire
buildings directly from developers, rebranding and selling them to its private
investors as individual units and even whole floors. DCA would then buy them
back and resell the properties to the wider market at a hefty premium. It was a
flawless business model in an ever-rising market, and it was reported that
within four years of beginning operations, DCA was turning over a billion
dollars in revenue.

It was no wonder that stories of Benito’s
extravagances bordered on the obscene. There were widespread rumours that he
owned seven luxury Bentley Continental GTs in different colours, one for each
day of the week, as well as a fleet of private jets, and that he was dating
four leading Hollywood actresses at once. As a rising young star in the fastest-growing
property market in the world, it seemed that anything was possible for Benito
Valli.

***

Between 2002 and 2008, an estimated $64.9 billion in foreign
direct investment flowed into the UAE from Europe, Asia, Russia, Africa and the
Gulf, and most of it went into Dubai’s booming property market. During the same
period, oil prices quadrupled, reaching a peak in 2008 of $140 per barrel. The
city became a haven for surplus petrodollars from across the region flowing
into its real estate sector and multiplying many times over, creating new millionaires
every day in the process.

Dubai redefined real estate as an asset class when
property became nothing but a vehicle to recycle cash for remarkable returns.
Investors were spoilt for choice, with dozens of new property developments
launched daily across the city by both the government-backed and private
developers. Once a deposit had been paid, the investor was free to sell or flip
their new purchase to a secondary buyer at whatever premium they could fetch.
The new buyer would be responsible for outstanding payments to the developer,
and the original owner could then reinvest his profits by doubling down and repeating
the process again, and again. It was a foolproof path to a fortune.  

Most real estate in Dubai was sold off-plan,
which meant that a buyer could purchase the deed on a property before a brick
had even been laid. Investors didn’t need to waste their time being shown
around by enthusiastic agents, evaluating finishings or assessing the merits of
the neighbourhood. Property was nothing but an instrument to trade, and only
two things mattered to Dubai’s cash-hungry investors: the price they were
paying and the premium they could obtain. The Dubai real estate market was
unrestricted by the regulation and red tape of more developed markets. It was
growing too fast for legislation to keep up, and surveying or conveyancing was considered
an unnecessary inconvenience. Instead, property values were determined purely by
the raw forces of supply and demand, and profits depended entirely on what the
market was willing to pay.  

The other great advantage was the ability to
buy on margin. Investors could put down a 10 or even 5 per cent deposit and
resell their investment within a matter of days. This mitigated the risk to the
investor and allowed him to turn around a quick profit with little money down.
It also meant that even a small increase in the market value of the property could
translate into a huge return on investment. In many cases this deposit was borrowed
or placed on a credit card, making it the ultimate no-money-down investment.

Nevertheless, huge returns were not without substantial
risk and early investors in Dubai took a great leap of faith. Few performed any
meaningful due diligence, as the market moved too quickly for such time-consuming
checks and balances. They gave their money to unproven developers and invested
in projects they had no guarantees would ever be built. Their money was not
placed into escrow accounts until much later when the escrow law was passed, and
there was little legislation or legal framework protecting their interests.
They committed to aggressive payment schedules unlinked to construction
milestones, and most of them didn’t think beyond financing the first one or two
payments. This was a high risk, high reward game which was attracting new
gamblers daily.

The key to making money in the Dubai property
game was to find the greater fool. The fool was the next buyer in the chain who
believed that he was buying at a low enough price to lock in a profit to the
next purchaser. The ultimate fool would be the final investor, or end user, who
would have no choice but to hold the proverbial hot potato. Therefore the most
important principle in churning a profit was to buy low and sell high. The best
way to lock in a premium was to buy as close to the launch price as possible,
and the best way to ensure the best price was to build close relationships with
the developers.

With such low barriers to entry, competition
between the developers quickly turned fierce. There was only so much they could
do to differentiate their luxury tower from the next one, so many developers
began to offer sweeteners to investors to make their project that little bit
more enticing. Some offered luxury cars to their biggest investors with every
purchase, while others threw in a yacht-club membership or a free holiday. Soon
investors were buying to claim the incentive as much as the property itself.

Eventually, the government cottoned on to the
success of such gimmicks and offered the ultimate incentive to overseas
investors: a residency visa with every property purchase. Previously, visas had
been reserved for expats working in the Emirate, but now for the first time
investors were given the privilege of residing in the tax haven if they
purchased property. The exact conditions of this new law were yet to be ironed
out, but the promise was enough to send investors into a frenzy as sales
rocketed on the news.

In addition to the flurry of developers
entering the market, around two and a half thousand new real estate brokerage
firms were also set up from 2003. The role of the brokers was to act as a
conduit between the developers and buyers. They were market makers who created
a secondary market for investors and much-needed liquidity for speculators
seeking to flip. The brokers were big winners in the property game. They saw
themselves as the ‘big swinging dicks’ of Dubai, and their huge monthly
commissions justified the hype. They took a fee of between 2 and 5 per cent from
every transaction and were exposed to none of the risks. Billions of dollars
worth of real estate was soon passing through the brokers, earning them
millions in commissions and making many young realtors very wealthy in the
process.

Most real estate agencies hired an army of realtors
to generate business and close deals. In addition to competing with other
brokerage companies, they also competed with hundreds of freelance brokers who
maintained day jobs as taxi drivers or delivery boys. The market was a free-for-all.
Freelancers didn’t need the overhead of an office, a marketing budget or a
trade licence; they simply needed a phone and some balls. Many worked from
hotel lobbies and malls, and some of the more successful freelancers made more money
in a day than most registered agencies were making in a month.

As investors made more money, their eyes became
beadier and the prize became greater. Investors went from buying a few units in
a building to entire floors, and then to half buildings, and eventually entire
buildings, giving rise to a process that became known as underwriting. Buying
entire buildings from developers at a wholesale price and selling individual
units to their clients at inflated premiums was the quickest way to generate
massive returns that only the most cash rich could afford to do. In reality, it
was flipping on a huge scale.

Between 2002 and 2008, market analysts tried to
predict the moment when supply would finally overtake demand, but it never
seemed to materialise. Hours after the announcement of a new project, units
were snapped up by the pent-up demand. And as more and more property changed
hands, prices continued to spiral upwards at breakneck speed. And with
ever-increasing liquidity in the market, developers were encouraged to launch
bigger projects to meet the insatiable demand from investors, which again drove
up values, adding yet more fuel to the roaring real estate furnace.   
 

***

The launch party for DCA’s Business Bay project was a
grand affair. A giant marquee was erected on Jumeirah Beach under the Burj Al
Arab, and the event was attended by investors from across the globe, many of
whom had flown in just for the night. Once the crowds were seated, the lights
went down and the proceedings began. There was a fanfare of trumpets and a
dramatic drum roll before the giant yacht rolled slowly into the hall to the
delight of the crowd. And there on the bow stood Benito Valli, dressed in a
fine black tuxedo and sailor hat, like Caesar entering Rome to rapturous
applause. On his arms were a stunning blonde and a brunette dressed in tight-fitting
swimwear, smiling ear to ear while posing for the army of photographers. 

Within minutes, units and floors in the new
tower were already oversubscribed. Cheques were flying around the room as DCA’s
eager representatives scuttled between the tables to take down the details of greedy
investors who were certain that buying at the launch price would guarantee a
profit when they flipped to the secondary market. Little did they know that the
building’s units had already been bought and sold numerous times by DCA’s elite
investors, and DCA had made a fortune each time in the process.

It was no wonder that Benito held the huge grin
on his smug face for the rest of the night.

‘So your father told me that you’re in Doo-bai. What on
earth are you doing out there? Why didn’t you tell me you wanted to work abroad?
I could have connected you with some people here in the States.’

‘But uncle, this city is really going places.’

‘Yes, I’ve heard. But the question is, is it
for real or just another bubble?’

‘Of course it’s for real, uncle. This is one of
the fastest-growing cities in the world. People are arriving here in their
hundreds every day and they are all looking for property.’

‘Yeah, but just remember one thing: what goes
up usually comes down just as quickly.’

I rolled my eyes. ‘Sure, I’ll remember that.’

‘And listen, if you hear of any good deals out
there, be sure to keep me posted, okay?’

‘Will do, uncle.’

In a way, Uncle Ali’s scepticism was reflective
of most outsiders’ suspicions of Dubai. My father’s brother was always thought
of as the success story of the family, having moved to the US early on in his
career and done rather well for himself. Like most Americans, Ali saw the
Middle East as a backward, third-world region and he simply couldn’t understand
why I had made the move here. But Ali was still a capitalist at heart and the
wealth opportunities of Dubai were impossible to ignore. Despite his
reservations, he was itching not to miss the action and even to get a share of
the spoils.

‘By the way, while you’re out there you should
meet up with an old buddy of mine. We used to work together years ago in
London. I hear he’s some real estate bigwig in Dubai now. He may be a useful
contact for you.’

‘Sure, that would be great.’

‘His name is Tariq Sharaf. I haven’t seen him
in years, but I think he’s doing pretty well for himself. I’ll email you his
phone number.’

‘Thanks uncle.’

‘And just promise me one thing, okay? Make sure
you don’t get your manhood chopped off for chatting up some sheikh’s daughter.’

‘Okay, uncle, I’ll try to behave myself.’

Moments after hanging up, Ali emailed me
Tariq’s number and I called him right away.

‘Hello, Tariq speaking,’ answered a man in an English
accent.

‘Hi, Tariq, I was given your number by my uncle
Ali in San Francisco. I’m his nephew Adam, and I’m living here in Dubai now.’

There was a pause. ‘Ali?’

‘Yes.’

‘How is that old bastard? Is he still hiding in
the US?’

‘Yep, he still lives in the US.’

‘Great. Well, as you’re Ali’s nephew, why don’t
you come over to our house for tea? Get in a taxi over to the Jumeirah Islands,
cluster twenty-three, villa seven. Tell the driver it’s near Jebel Ali. See you
at nine?’

‘That would be perfect, see you then.’

I freshened up and jumped in a taxi to make my
way over for dinner.

‘Yes, sir?’ said the Indian taxi driver.

‘Do you know the Jumeirah Islands?’

‘Jumeirah Eye-lun, sir?’

‘Yes, the Jumeirah Islands, do you know it?’

‘Okay, sir.’

‘Well, is that a yes or a no?’

‘Okay, sir. Tell me which place is close by.’

‘It’s near Jebel Ali.’

‘Okay, sir. No problem.’

‘So do you know it?’ I was still unsure.

‘No problem.’

I wasn’t completely convinced he knew where we
were going, but I gave him the benefit of the doubt, and we were on our way.

‘Where you from, sir?’

It was an all too familiar question. ‘I’m from
London.’

‘London? You look like Arab.’

‘Yes, I’ve heard that before.’

‘London good, Dubai bad,’ he smiled.

‘Hmm, that depends.’

‘Depends?’

‘It depends what you do, I guess. Would you
rather be in London?’ I asked.

‘Oh yes, sir. I wish I go London. It is my
dream!’ he said with a huge grin.

He wasn’t alone. It was the ultimate aspiration
of most taxi drivers I had met to live in the West. Most of them couldn’t
understand why anybody with a British passport would come to the Middle East to
work. This contradicted every ideal they had about the West as the perfect
society, where salaries were high, life was easy and the streets were paved
with gold. Theirs was a world far from the Friday brunches, BBQs and dinner
parties. They didn’t see the benefits of a tax-free salary and the beach clubs
that ungrateful Western expatriates took for granted. The sole purpose of every
low-paid worker was to make and save money, so that their children could eat at
least a meal a day, and their families could hang on to some poor excuse for
shelter back in their poverty-stricken home countries. While they spent up to
eighteen hours a day working for a measly wage in Dubai, often to the detriment
of their health and safety, the Western world offered the prospect of that
little bit more to earn and send back home.

Distracted by our conversation, I suddenly
realised we had been circling the same block for over ten minutes. Clearly, we
were lost. It didn’t help that there was no formal system of addresses in
Dubai. Without a significant landmark close to the destination, one could be
circling a neighbourhood for days and still not find the place. The added challenge
of the ever-changing road network that reinvented itself daily to accommodate
the massive amount of construction activity didn’t help. Some routes seemed to
disappear and reappear out of nowhere overnight.

‘Do you actually know where we are?’ I finally
asked the driver.

‘Yes, sir.’

‘So are we close?’

‘Close sir, no problem.’ I wasn’t convinced.

He nervously pulled out his mobile phone and
began to shout at it in Urdu. The only phrase I vaguely understood was ‘Jumeirah
Eye-lun’, which he repeated at least fifty times. Eventually, he seemed
satisfied enough to hang up.

‘Okay, sir, I know Jumeirah Eye-lun now.’

‘But I thought you said we weren’t lost?’

‘No problem, sir.’

As we finally pulled up to the gate, an Indian
man in a beret and blue uniform came out of a small security hut. I told him
the cluster and the villa number and he opened the barrier. As we drove into
the Islands, it felt like entering the pages of a property brochure. There were
beautifully landscaped gardens, small wooden bridges and dancing water
features. Young children rode past us on bicycles amid fountains and palm
trees, and Lycra-clad expats jogged past us by the dozen. It was eerily perfect
and my taxi driver looked as astonished as I was as we absorbed the idyllic
scenery. I was astonished at the sheer size of some of the villas ahead, each
with its own unique identity and character. ‘I think this is it,’ I said as we
drove into cluster twenty-three. The driver parked up outside.

‘Seventy-two dirhams, please.’ I gave him a two-hundred-dirham
note and waited for my change. It didn’t come.

‘Can I have my change, please?’ I asked
assertively. 

‘Sir, you want change?’

‘Yes!’

‘Okay, sir.’

He reluctantly obliged and handed me the cash,
perhaps assuming that my high-end destination was somehow a reflection of my
own financial well-being.

The taxi sped away and I strolled up to the
house. Villa seven was the largest on the block by far. I walked up the cobbled
path past the perfectly mown front lawn and rose beds. A fountain gushed gently
in the centre of the courtyard, breaking the silence of the sleepy
neighbourhood. I strolled up to giant oak doors, tucked in my shirt and rang
the door bell. After a few moments, the door opened and there stood a tall Asian
man with a bushy moustache and oily hair.

‘Good evening. It’s a pleasure to meet you,
Tariq. I’m Adam.’ I handed him the box of chocolates I had picked up on the way
and shook his hand enthusiastically. He didn’t say a word and looked confused. ‘I
really want to apologise for being so late, we got completely lost and my taxi
driver didn’t really know his way around too well.’

The man just stared at me, and I feared that my
lack of punctuality had caused offence. ‘Sir will be down in a short while.’

I froze with embarrassment. ‘Ah, so you’re not
Tariq?’

He shook his head. I smiled sheepishly and
followed him into the living room. ‘Please,’ he said, pointing at the inviting
couch. I took a seat and waited patiently for my real host.

‘So you made it!’ I turned around and saw a small,
unassuming man in a loose-fitting shirt and slacks. The little hair he had left
was short and spiky, and he wore spectacles on the tip of his broad, flattish
nose. I stood up to shake his hand.

‘Good evening, Tariq, it’s a pleasure to meet
you.’

‘So you’re Ali’s nephew, huh?’

‘Yes I am. I’m sorry I’m a little late. I
brought some chocolates. I left them with...’

‘Akbar? Yes, he’s our help. He makes a great
curry, you know. Make yourself at home. Are you hungry?’

Akbar emerged from the kitchen and laid the
coffee table with tea and strawberry cheesecake.

‘Looks amazing,’ I said, as I eyeballed the
cake.

‘Your uncle and I go back a long way. We used
to chase girls together back in school, the rascal! I bet he never told you
that.’

‘No, he didn’t. Do you guys still keep in contact?’

‘Not really. He went out to the US and I came
out here to the Gulf, so we lost touch recently. He never liked the Middle East
much. He thought it was a mirage. But I always told him that if you know the
right people, there’s more money to be made out here than anywhere in the
world. It’s still an untapped goldmine as far as I’m concerned. So tell me, how
have you settled in Dubai?’

‘Pretty well, I think. There have been some up
and downs, but I think I’m finding my feet now.’

‘Ha-ha, ups and downs. There are certainly a
lot of those. Dubai can be a very difficult place to live if you don’t know the
right people. Somebody needs to be watching your back all of the time in this
place, if you know what I mean.’ He was alluding to
wasta
.

‘So my uncle mentioned you’re in real estate,’
I said as I took a bite of the delicious cake.

‘That’s right.’

‘I was at Cityscape recently. It totally blew
me away!’

‘Yes, it’s a great time for Dubai. But it
wasn’t always like this. I’ve been here for almost twenty years now and trust
me, I’ve seen the ups and downs.’

‘So do you work for one of the developers or
agencies?’ I asked.

He smiled. ‘Well, technically I don’t work for
anybody. I sort of run my own thing.’

‘Oh, great. Would I have heard of your company?’

‘Possibly. We are called Milestone Properties.’

I almost choked on my cheesecake.

‘Are you okay?’ asked Tariq, with concern.

‘I’m fine, thanks,’ I replied as I coughed the
piece of cake out of my throat. ‘Yes, the name Milestone rings a bell. You guys
are one of the bigger names in the market, if I’m not mistaken.’

It was an understatement of gargantuan
proportions. Milestone was one of two premier real estate agencies in Dubai, probably
the biggest. The name featured on every newspaper and billboard across the city,
with branches in prime locations, a 500-strong workforce and a reputation
others could only dream of. And here I was sitting with the founder, sipping
his tea and eating his cheesecake! I tried to keep calm and not look intimidated.

‘So, Tariq, how long do you think this real
estate boom can realistically go on for?’ I asked, attempting to sound credible.

 ‘That’s a very good question,’ he replied. ‘What
we see happening today is a once-in-a-lifetime event. But this is just the
beginning of the Dubai success story, in my opinion.’

‘How so?’ I probed. 

‘Well, just look around you. The economy is
booming. Dubai has a clean slate to build a city from scratch, and it’s taking
advantage of the opportunity.’

‘Yes, but there is just so much property being
built here. Can the city really absorb all of this supply?’

‘That’s true, but thousands of people are also arriving
here every day, and they will all need somewhere to live eventually. What we’re
seeing is a massive population shift from Asia, India, Africa and the West. We’re
actually just scratching the surface.’

‘But prices can’t keep going up for ever, can
they? They have to stop somewhere, surely.’

‘No, they can’t. But prices in Dubai are still
very reasonable compared to the rest of the developed world. Compare Dubai to
the UK, for instance: prices here are still around a third of those in London,
yet salaries in Dubai are at least on par with if not higher than UK post-tax
salaries. This suggests that prices still have a long, long way to go.’

I paused to absorb his convincing argument. ‘I
didn’t look at it that way.’

‘Look, there will always be sceptics and
pessimists who stand on the sidelines and look for reasons why people shouldn’t
be making money. Most of the time, they’re just angry with themselves because
they missed the boat. Waiting for a crash to happen is like waiting to win the
lottery – it may never happen and you waste a lot of time in the process.’

I wasn’t sure whether Tariq really believed
what he was saying, or whether he was just the best salesman I had ever met.
Either way, it was just what I needed to hear. A positive view on the market
from a man with his pedigree and experience was enough to instil confidence in
even the most pessimistic observer. It also vindicated my confidence in the fund
Jamal and I were planning. I began to ponder whether Tariq’s involvement could
be the final ingredient to ensure its success.

‘Tariq, do you mind if I get your opinion on
something?’ I asked, after some thought.

‘Not at all,’ he said.

‘It’s an idea that I’ve been working on which
will offer a totally new brand of investors access the real estate market in
Dubai.’

He looked interested. ‘I see. Tell me more.’