Chapter 3: Methodology
3.1 Research Design
“A research design is a framework or blueprint for conducting the business research project. It details the procedures necessary for obtaining the information needed to structure or solve business research problems.” (Green Field Online Research Center, 2009). Choosing the right research design depends on the topic at hand, and whether a hypothesis is available, initially or is to be deduced from the literature review and primary research itself. This research design approach has been carefully selected, in order to match the topic. Three in depth interviews have been conducted with experts on the topic, their expert opinions where used in the formulation of the conclusions, and answering the hypothesis questions.
3.1.1 Using a descriptive research approach
“A descriptive research approach attempts to identify the different variables that exist in a given situation, and also to identify the relationship between these different variables with the intention of providing a complete picture of a particular phenomenon rather than to hunt out relationships such as cause-effect relationships” (Christensen, 1991). This study requires an initial hypothesis; in this case I have presented four. The goal of a descriptive study is to explain a certain relation related to a group. In relation relying on the information obtained through three in depth interviews, a relation was observed regarding the market, and the different variables that play a role in it.
The research involved relying on the opinions of the three experts. The opinions and observation of these experts have greatly influenced this writing. Looking into the Dubai economy and its dynamics is not something new rather, a common practice in academia and business analysis. Dubai has received notable attention over the past few years, as it plays a major role in the global economy.
3.1.2 Deductive Reasoning
- First Hypothesis
The real estate market in Dubai saw a stronger decline than the other sectors in the economy
The data collected supports the fact that the real estate sector did witness a greater decline than other sectors in the economy. This is due to multiple factors following a sequence. The first step building up to this was that the real estate market has received extra attention since 2001 due to the attractiveness of the profit margins. This created a steady stream of construction sites, which kept on going even through the 2008 financial crisis. By 2009 trust in the system started to fall, and FDI dropped. The gap created between the existing and steadily increasing supply and the shriveling demand caused prices to drop and this sector to witness the hardest hit.
- Second Hypothesis
The real estate market will recover over the coming years but at a slow rate
Predictions for the Dubai economy are strong. Recovery has already started, but at different rates in different economies. Real estate broke out of the negative growth rate it was in during 2009 and 2010. However it is no were near the 18% growth rates Dubai is used to having. Growth is estimated to rise, however predictions have been wrong previously. The national growth rate in the UAE has recovered, but experts say this is due to large development projects in Abu Dhabi covering up Dubai figures.
- Third Hypothesis
Market demand in the real estate market is directly correlated with foreign investment
Dubai’s population is made up of a majority of expats, a figure close to 80%. The growth witnessed in real estate between 2001 and 2008, has shown some correlation with the amount of foreign direct investments, in the sense that during the time of the surge of FDI (2001-2008) prices in real estate where steadily increasing. During the halt of FDI (2009+) Real estate prices have plummeted significantly.
- Fourth Hypothesis
Development of extravagant projects will decline in favor for practical and infra-structure based projects
It is hard to know what Dubai will come up with next, what project will break a world record. With current records as the world’s only 7 star hotel, and the world’s tallest building amongst other Dubai is known for extravagant projects that are all part of its PR and image. However, experts noted that during the period of the crisis and shortly afterwards the focus has been on infrastructural projects that will allow Dubai to attract more investments in the future, handle more international trade, and prepare it for a larger business load.
This shift in trend does not mean Dubai will not be undertaking lavish projects anymore; however the government had pushed to a more conservative development approach during times of international economic unrest.
3.1.3 Research Methodology
The qualitative research approach has been selected, in order to study this market, through three in-depth interviews. This type of research provides a clearer understanding and richer information on the subject at hand. However this type of research is more time consuming that its quantitative counterpart, and achieving a large enough pool of opinions might prove challenging.
With an economy build on expats, and foreign investments to such as size so that it cannot be locally sustained, it is only normal to expect that attracting more expats and FDI is the only way to recover and further grow the economy. Key drivers for real estate development are naturally high profit margins. These profit margins can only be provided with hefty demand.
The trend that took place in 2001 is what Dubai needs to be recreated, tax haven, laws that protect expats, and great living conditions. By providing the incentive for money flow into the country, that along with the incentive for highly skilled labor, and a set of laws that allows it all to work together. The economy is getting more and more stable due to the diversification that is taking place, and all the lavish projects has attracted tourists from around the world, to the point that tourism now plays a significant role in the Dubai economy.
As all this is falling into place, people will follow the jobs into Dubai, creating demand for both residential and commercial real estate, pushing the prices back up and the margins with it. However Dubai should be wary, as with fast development comes the need to manage this development. In order to maintain the financial trust, fiscal and monetary policies should be implemented to manage inflation, and direct towards sustainable growth.
Monetary pumping was a major player in this setback and might be in future ones. Dubai should be wary when developing mega structures with artificial supply of money. With good economies, Dubai can handle the extra weight of these projects, but these projects cannot stand on their own. Undertaking many of them at the same time, if allowed only by this pumping is risky. Once the pumping stops money supply declines, and loans may not be paid back. Even if Dubai was able to freeze the loan, or get a bailout the trust in the system would have faded away. The verdict is, monetary pumping should be done carefully, without jeopardizing the integrity of the system.
In comparison with the quantitative research approach the qualitative gives in explanations for the behaviors observed, explaining the bigger picture. On the other hand a large quantitative study would be more interesting if preformed on a large enough sample. The study was preformed through three in-depth interviews with experts on the topic including analysts, and developers.
3.2 Questionnaire Design
Tackling the hypothesis questions was done through formulating interview questions in order to find answers regarding these topics. The Questions where targeted at three experts that agreed to participate in this study. The three interviews took place face to face with Butti, Joseph and Johnston. An attempt at getting the interviewees included calling agencies and development companies for possible interviews; three responded positively and formed the basis of this study. The questionnaire was design to investigate on the background of the person interviewed, in order to observe any discrepancy in the opinions of investors and developers. Questions will also cover their understanding of the financial crisis, and the effects that took place on the real estate market, and expectations for the future. The questionnaire will also cover key background information such as the person’s involvement with real estate, and the Dubai real estate market in particular.
3.3 Process of qualitative user analysis
Qualitative analysis will be done with regard to the three face to face interviews completed. Several steps are essential for proper analysis to be done.
Good data must be unbiased, in order for the analysis to valid. It is important to evaluate the background of the interviewees in order to assure that the data collected is not just the point of view of one type of player, repeated three times. Biased data should be removed from the study, and first impressions should not be given significant weights. Regarding that manner the data has been collected from three sources, each from a different background and affiliation with the market.
3.4 Questionnaire, Interviews and Analysis
The interview questions where designed to address the effects of the financial crisis on the real estate market, along with expectations for the future development of this market. Limitations where faced during the interviews, starting with the number of interviews granted, as many of the experts contacted refused cooperation. Another limitation faced was the refusal on covering certain topics, some questions received no replies.
Chapter 4: Results and analysis
4.1 Data Findings and Analysis
Similar sets of questions were asked during all three interviews; the data collected has been cross-checked, and compared. Supporting points and contradicting points where found. To ensure objectivity, a similar set of questions was asked to all three interviewees, in the same order, where applicable, without any suggestions from the interviewer. Upon the 10 attempted interviews 3 where granted.
4.2 Basic information of the respondents
An analysis of the interviewees: basic overview
The first interview was conducted with Al-Maktoum, private real estate investor in the MENA region with multiple investments in the Dubai market. The following are the highlights of the interview
- Did the real estate market observe a decrease in investment during financial crisis?
In 2008, the market held strong. Investors were aware of the international financial crisis, however Dubai seemed immune. Prices kept holding, the government kept projects going, and profits were being made. By mid 2009 however the story was different, demand plummeted, and with stories about Dubai’s debt spiraling out of control, confidence fell. It all happened quickly; suddenly empty construction sites became a normal view.
- How did real estate demand react during the financial crisis?
Like I said regarding the previous question, in 2008 demand was strong. FDI was at an all time high, and demand was even stronger than 2007. But as the confidence fell in 2009, the fear was that the real estate bubble has burst, no one wants to invest in an artificially inflated market.
- Where prices too inflated before the crisis? Where those prices reflection of real demand?
With the exception of a handful of government-backed projects the demand was real. Prices were soaring but for valid reasons. Yes, the prices were really high, amongst the highest in the world, but I think it was justified.
- How have investments recovered after the crisis? What are your projections for the coming years?
Figures show some improvement but I really cannot say how the market is doing.
- Do you see a shift in trend in terms of the types of projects undertaken?
The word floating around is that the times of mind blowing projects are behind Dubai. I do believe the focus will shift towards more practical projects, for now at least.
- How has FDI affected the real estate market? Is it a major contributor to its performance?
FDI has been a major contributor to this market’s performance; the Dubai is practically made up of expats. You can see it in 2008’s figures, highest FDI along with one of the best years for Dubai’s real estate. I think you can even say Dubai’s real estate depends on FDI.
4.3.2 Interview Two
The second interview was conducted with Alexander, a real estate broker in the UAE with more than 10 years in the Dubai market. The following are the highlights of the interview
- Did the real estate market observe a decrease in investment during financial crisis?
The answer to this question is an obvious yes. The figures tell the entire story, many projects where scrapped, and money others were delayed. There were too many existing apartments, offices, retail spaces that didn’t find demand; there was no point in any further investment.
- How did real estate demand react during the financial crisis?
It is a crisis, so demand did fall. However what I observed was persistent demand for the cheaper office spaces. With so many empty offices, rental and sale prices went down drastically, and with it came a small surge of demand on the lower end market.
A big portion of demand also came from Arabs outside the UAE particularly from Syrians, and Egyptians. I personally oversaw a hand full of transactions covering large sums of money. This was normal for Dubai, but during the crisis it was a unique event.
- Where prices too inflated before the crisis? Where those prices reflection of real demand?
Prices were high, and they were constantly going up. But in my business I did not see any slowing down in the way real estate was selling. People kept on buying, till all of a sudden in 2009 things came to a halt.
- How have investments recovered after the crisis? What are your projections for the coming years?
Personally I’m dealing with projects that have been completed a few years ago. Demand has increased, and we are observing new projects under development, nothing compared to pre-crisis. Any ways you need to check with developers as they see the full scope of investments in the market.
- Do you see a shift in trend in terms of the types of projects undertaken?
I only deal with commercial, residential, and retail type real estates. Amongst those trends are holding, except for a hold back on office construction due to the oversupply. I do however believe Dubai will view a broader approach to development.
- How has FDI affected the real estate market? Is it a major contributor to its performance?
As far as I’m concerned at least half of the projects I deal with have partners who are nonlocal. So I would say FDI forms a significant portion of investments in the market.
4.3.3 Interview Three
The third interview was conducted with Mubarak a real estate developer in Media City. The following are the highlights of the interview
- Did the real estate market observe a decrease in investment during financial crisis?
My position as part of a real estate development company, United Arab Emirates puts me in direct contact with investors. Foreign investments, along with local investments halted during the crisis especially in 2009. Some investments presumed especially those from Arab sources, along with investments backed by Abu Dhabi Government.
- How did real estate demand react during the financial crisis?
My position makes interactions with purchasers very limited, we deal with brokers, and other intermediaries, or development for a specific firm. However the decline in projects should have been caused by a fall in demand.
- Where prices too inflated before the crisis? Where those prices reflection of real demand?
Development costs have increased significantly over the past years preceding the crisis, prices of construction material has shot up. On the on the other hand, demand was strong. The increase in prices was justified. Again limited by the number of interactions with buyers, still my guess would be a large portion of this demand was real.
- How have investments recovered after the crisis? What are your projections for the coming years?
Investments did recover after the crisis. A slow recovery but it looks steady. I really cannot make any educated guess has to how the market will act in the future, but I am optimistic.
- Do you see a shift in trend in terms of the types of projects undertaken?
In general terms yes. With a few exceptions, most projects under study for future development are more “normal” with regards to the global meaning of the word. Normal in terms of development projects had a different meaning in Dubai, compared to the rest of the world.
