Key facts you should know about World Expo 2020

Dubai will be hosting the World Expo 2020, which is regarded as the third largest global event after the Olympics and the World Cup Soccer, from October 20, 2020 until April 10, 2021. As a general rule, this six-month event is held every five years. While the last World Expo was held in Shanghai, China in 2010, the next one is scheduled for 2015 and will be held in Milano (Milan) in Italy.

While the Shanghai Expo focused on sustainable city development under the theme ‘Better City, Better Life’, the one in Milano will be titled ‘Feeding the Planet, Energy for Life’. Similarly, the theme of the Dubai Expo scheduled for 2020 would be ‘Connecting Minds, Creating the Future’. With this theme, the Expo will foster a hands-on approach to figure out the solutions to three very concrete sub-themes: mobility, sustainability and opportunity.

In the history of World Expo, so far this mega event has never been organized in the Middle East, Africa and South East Asia. As such, Expo 2020 in Dubai will be the first-of-its-kind international exposition in this region and it is expected to attract 25 million visitors from over 200 countries around the world and thereby help Dubai and the UAE reinforce their position as a global business hub.

Expo 2020, which marks the celebration of the 50th anniversary of the Emirate, will be organized on a 438-hectare site located adjacent to the new Al Maktoum International Airport on the southwestern edge of Dubai which is equidistant from Dubai and Abu Dhabi. The site will be divided into three areas dedicated to each sub-theme and these thematic zones would lead to Al Wasl, the main plaza. Different countries would be allowed to set up their pavilions in the area that best corresponds to their development strategy.

After the Expo gets over, the site based on modular design will be dismantled and rebuilt to create appropriate infrastructures – such as the Dubai Trade Center Jebel Ali, an Expo museum, a university and apartment buildings – in a bid to further develop the entire region.

Now coming to the most important question with regard to how Expo 2020 is going to affect the lives of Dubai residents, this high-profile exposition will have a very positive impact on all sectors of Dubai’s economy, which in turn will immensely benefit the local residents. First and foremost, it will bring in unprecedented investments into various sectors of the local economy, thereby generating a large number of business and employment opportunities.

Business opportunities will get created as Dubai transforms into a top global centre for tourism, trade and finance, giving a major boost to hotels, restaurants, car rental agencies and other related economic activities. Job opportunities will surge as large construction projects get underway, as well as tourism and hospitality sectors witness an exceptional boom. For instance, a study done by consultancy Oxford Economics estimates that the World Expo 2020 will lead to creation of about 277,000 new jobs as well as significant rise in salary levels in some industrial sectors.

Finally, coming to the negative effect this global exhibition is likely to have, majority of the people residing in the emirate fear the unprecedented influx of tourists, investors and job aspirants may create an upward pressure on the prices of essential goods and commodities across the board, which in turn will lead to a rise in cost of living. Secondly, if there is a major surge in the number of people coming to work in the UAE, property rentals will shoot up considerably, which may further compound the inflationary trends.

Why Bank lending to SMEs is very low in the UAE?

A survey of more than 700 small and medium enterprises (SMEs) conducted in the UAE has shown that 83% of them have no access to bank loans. Similarly, a panel discussion held at the SME World 2014, a two-day summit organized in Dubai on March 26 and 27, 2014 revealed that bank loans to the SMEs across the UAE adds up to just 4% of the total lending as compared to double digit figures in the developed world. This may sound shocking when one realizes that 90% of the companies registered in Dubai are SMEs.

Some other complaints that SME owners have against local banks include high interest rates being charged on loans, various problems encountered while opening of bank accounts, banks unilaterally closing down some of the accounts despite the concerned enterprises maintaining sufficient balance with the bank, among others.

Top bankers cite reasons like regularity-compliance and transparency-related issues for the reluctance of local banks to extend loans to SMEs. Therefore, MoneyGulf.com conducted a study to precisely know more about these issues and found that SMEs in the UAE find it tough to access bank loans because of the following reasons:

1. The SME sector in the UAE lacks professionalism and financial transparency because of which many promoters tend to mix up their personal and business expenses. Senior bankers maintain they cannot extend credits or loans to such SMEs unless they initiate robust financial planning and start maintaining transparent financial records.

2. Banks view some of the SMEs as risky loan clients because of their erratic management and unsound financials. Bankers believe lending money to SMEs that lack financial discipline and formal management structures may not only prove very costly at a later state, but it is also fraught with risk in the light of their high-risk operations.

3. The limited size of most SMEs in the UAE coupled with lack of appropriate credit history is another deterrent for banks considering financial support to most small and medium-sized firms. Many of these SMEs fail to draw up a clear business strategy and some of them even lack a robust business model to inspire confidence of bankers.

4. Many SME owners do not bother to maintain proper books of accounts or prepare accurate financial statements. Those who meticulously maintain them, fail to get them audited because of which such entrepreneurs and their finance managers lack comprehensive understanding of their own financing requirements and banking needs.

5. While some of the SME owners may understand their business very well, they fail to implement good corporate governance measures and the essential standards within their business operations. Furthermore, most SMEs are unable to offer tangible or real assets as security that financial lenders can fall back on in the event of loan defaults.

6. SMEs also find it difficult to secure bank funding because some of them tend to have a great exposure to local market conditions as compared to bigger multinational companies. So when the domestic economy goes through a downturn, such SMEs are adversely affected and they are unable to meet their debt repayment schedules.

7. Currently, there is no functional credit bureau in the UAE because of which banks find it extremely difficult to obtain comprehensive information or sufficient market data about the past credit history of their SME clients. Once the Al Etihad Credit Bureau (AECB) becomes operational, this particular lacuna may get eliminated permanently.

How are sukuk different from conventional bonds?

(1) Sukuk (plural of Arabic word sakk meaning certificate) are Islamic bonds, which are asset-based securities. Those who purchase sukuk are rewarded with a share of the profits derived from the asset. They don’t earn interest payments because of the Islamic ban on interest. However, conventional bonds are debt instruments and the investor receives an interest payment or coupon, against their investment.

(2) Sukuk gives the investor or holder an undivided beneficial ownership in the underlying assets on which the Islamic bond is based. This ownership right is directly proportional to the total amount he has invested or the number of sukuk he holds. Conventional bond just represents a contractual debt obligation from the issuer to the bond holder. So conventional bond does not bestow on the investor any ownership rights in the asset, project, business, or joint venture the bond supports.

(3) The assets on which sukuk are based must be sharia-compliant. Sukuk holders are entitled to a share in the revenues generated by the sukuk assets. There are no such class restrictions with regard to the nature of assets when it comes to conventional bonds. The money mobilized through conventional bonds can be used to finance any asset, project, business, or joint venture that complies with the local legislation.

(4) Most individuals invest or buy sukuk because of their religious dispositions. People, who buy or invest in conventional bonds do so solely guided by monetary or profitability considerations.

(5) The face value and issue price of a sukuk is based on the market value of the underlying asset. The issue price and face value of a conventional bond is based on the issuer’s credit worthiness, including the assigned market rating.

(6) Sukuk holders receive a share of profits from the underlying asset and in case of loss, they also have to accept a share of the loss incurred. So, the initial investment isn't guaranteed and the sukuk holder may not get back the entire principal amount. Conventional bond holders receive regularly scheduled and often fixed rate interest payments during the life of the bond till they mature and are redeemed, and their principal is guaranteed to be returned on the bond’s maturity date.

(7) In the case of sukuk, there is a possibility of capital appreciation. So, investors may sometimes get more return on their invested capital or more than the principal amount. As against this, in case of conventional bonds the return is fixed and cannot vary with the performance of bond issuer.

(8) Sukuk holders are affected by costs related to the underlying asset. Higher costs may translate to lower investor profits and vice versa. Bond holders generally aren't affected by costs related to the asset, project, business, or joint venture they support. Hence, the performance of the underlying asset doesn't affect investor returns.

(9) Sukuk are of recent origin and they emerged to fill a gap in the global capital market because of Islamic investors wanting to balance their equity portfolios with bond-like products. Conventional bonds have been in existence for centuries and have been in use as financial instruments across the world irrespective of the regional affiliation or religious disposition of the issuer or subscriber.

(10) Of late, the sukuk market is growing rapidly on the back of significant growth being witnessed by Islamic finance across the world coupled with the fast growth in Muslim population. Conventional bonds are not witnessing that kind of growth or popularity or demand.

Why you should not delay Buying a Residential Unit in Dubai?

Many of the expatriates who have been living in the UAE for the last so many years are likely to have invested in residential properties back in their home countries, while they continue to live in rented apartments or villas in the emirates. While it is always a good decision to invest in realty projects back home, it also makes good economic sense to own at least one residential unit in the country where one is currently employed and is likely to continue residing for at least a few more years.

As such, in case you are an expatriate residing in Dubai with plans to continue here for some more years and still don’t own a house in the UAE, it is high time you reshuffled your priorities, turned your attention to your current location and decided to buy a residential unit in Dubai without further delay because of the following reasons:

1. Though realty prices have been going up since mid-2012, even now there are decent deals available in the market. Therefore it’s as good as any in terms of time for you to buy right now as there are still ample opportunities for good bargains. So don’t believe if someone says it is too late to buy a house now because with Dubai winning the 2020 World Expo bid, realty prices will keep surging over the next few years.

2. Of course, if you had purchased a house between 2010 and 2012 or even last year, you could have got it at a much lower and attractive price. Though housing prices are now on the upswing, there are still many residential projects that are available at very tempting valuations. So it is definitely advisable to buy a house now before the property prices move up any further and gradually become unaffordable.

3. In your individual case, if affordability is an issue and you don’t have ready savings or liquid funds to buy a house outright, then take a mortgage loan and buy the property of your choice. Since most of the banks in the UAE are flush with funds and they are also scouting for more business and more customers, even now home loans are easily available at relatively appealing mortgage rates and terms.

4. Prices of residential units may jump as much as 40% this year, according to Dubai’s Land Department. Furthermore, the UAE economy has recorded a remarkable and rapid improvement since 2012 and is expected to expand by 4.7% this year after recording a growth of 4.9% in 2013, which has been the fastest growth since 2007. So buying a house is the best way to capitalize on the resurgent interest in the Dubai real estate market.

5. Of late, all the sectors of the UAE economy are on a recovery mode. As a result, not only are the real estate prices on the upswing, but rents of apartments and villas are also on their upward trajectory. Because of the soaring rent, it makes more economic sense to buy a house instead of taking one on rent. By doing so, you can use the amount you now pay as rent for repaying the mortgage loan availed to buy your dream house.

6. Even now, real estate in Dubai is relatively cheaper when compared to equivalent global hubs. Furthermore, Dubai enjoys advantages such as (i) proximity to the African markets, (ii) it is a gateway and an oasis of peace in an inherently unstable region, (iii) has a solid and diversified economy that keeps growing at a decent pace, which will invariably keep on attracting more and more investors and expatriates in the coming years.

In view of the above factors, property prices and rents in Dubai will keep rising consistently over the next few years. Therefore, as an expatriate residing in Dubai, you should not delay buying a residential unit anymore because if you wait any longer, it will only become more and more expensive and unaffordable.