Dubai’s Real-Estate Moguls Bet on Another Property Boom

ENLARGE

Dubai-based property mogul Safi Qurashi is among a cadre of investors who are again betting on Dubai's rising real-estate market. Photo: Clint McLean for The Wall Street Journal

DUBAI—Real-estate mogul Safi Qurashi is often asked why he has stayed in Dubai after he was imprisoned here for nearly three years and came close to losing his entire business.

“Why should I leave?” The 45-year-old Briton says. “Dubai is still full of opportunity.”

Mr. Qurashi is just one of a cadre of high-profile, sometimes controversial, property magnates who built their reputation in Dubai’s last property bubble. Many are now back building weird, wonderful and some say wildly overambitious projects in another go-go era for the Middle East’s capital of bling.

Dubai, through its government and ruler-owned real-estate conglomerates, is leading a construction frenzy of ambitious developments that seem to cost increasingly more with each new announcement.

Topping the list of government projects is Dubai World Central, an airport that is forecast to cost 120 billion U.A.E. dirhams ($32.7 billion) and house the fast growing Emirates Airline. Opening within eight years, the airport will be larger than both London’s Heathrow and Chicago’s O’Hare combined.

A giant temperature-controlled retail shopping district, dubbed “Mall of the World,” is another major priority for the government, which says it will cost AED25 billion ($6.8 billion) to build. The ruler’s own real-estate company is building a Disney World-like development. Cost: AED10 billion ($2.72 billion).

Private investors like Mr. Qurashi are quickly responding to the top-down activity. Among other projects, he has rekindled plans to build a Great Britain-themed resort on “The World”—an archipelago of some 300 islands already built at sea by government-owned developer Nakheel.

Even the recent drop in oil prices isn’t proving to be much of a deterrent. The IMF downgraded its growth forecast for the Gulf earlier this month, and as a result, Dubai will likely suffer from lower spending by the states around it. But the emirate’s economy is largely expected to hold up and continue to stimulate growth.

Most of the new projects are slated to be completed ahead of 2020, when Dubai hosts a global trade fair, World Expo. Dubai spent months vigorously campaigning to edge out three other cities, and when it won the bid in late 2013, the Burj Khalifa erupted with fireworks and a school holiday was announced the next day.

Dubai has slowly but surely clawed its way out of the hole it dug for itself in 2009 when a series of government-linked companies, including several under the direct control of ruler Sheikh Mohammed bin Rashid Al Maktoum, were unable to pay lenders on time and called for a standstill on repayments. The move signaled the death knell for an economic boom that had been fueled by real estate for almost a decade.

Dubai has again succeeded in convincing lenders—both international titans like HSBC and Standard Chartered and dozens of local banks—to support its government-linked real-estate developers. Investors, analysts and the emirate’s new crop of leaders all say this time is different to the previous boom running up to 2009.

Harald Finger, the International Monetary Fund’s head of mission in the United Arab Emirates, remains “cautiously positive” on Dubai. He stresses that a lot of progress has been made in the years since the 2009 crisis.

Companies owned or part-owned by the government have been repaying debts and have been executing new projects at a more measured pace, and the banking system has become much more resilient.

Two of Dubai’s biggest businesses, Emirates and DP World, have continued to grow and gain market share in their industries, creating jobs and stimulating trade.

“Either we move forward or go backward, because the world is moving forward,” says Salem Almoosa, an Emirati developer that has restarted a development of thousands of villas and apartments surrounded by life-size replicas of the Pyramids of Giza, the Eiffel Tower and the Taj Mahal.

Tourism has picked up as Dubai has benefited from the turmoil in nearly every other vacation spot in the region, from Beirut to Turkey. The emirate expects to welcome 20 million visitors by the Expo in 2020, up from 12 million in 2014. As a result, developers are building 40,000 new hotel rooms within five years, up from a total 80,000 today, according to broker Colliers International.

As for residential real estate, house prices here were some of the fastest growing in the world in 2013, up about 30%, according to most brokers. Sales prices, driven by foreign buyers, continued to rise in 2014, up by 18%, says property firm CBRE. Brokers expect a much more restrained market this year as more supply is built.

Ten years ago, Mr. Qurashi walked into a real-estate sales office in Dubai’s up and coming marina development in a similarly charged atmosphere. Plans were in place for eye-catching real-estate projects. Residential prices had skyrocketed recently and international investors were seeking fast-buck returns from the frothy city-state.

A confident sales assistant told Mr. Qurashi to buy a two-bedroom apartment and said he would double his money in three months. The property, which wasn’t even built yet, was selling for AED1.3 million ($354,000) and required only a 10% deposit to buy that day.

The block was being developed by relative newcomer Emaar Properties, which is part-owned by the government. At about 1,300 square feet, the apartment would have fantastic marina views once finished in a few years, the sales assistant said.

“Why not?” Mr. Qurashi said to his wife Huma.

Just 20 days later, the Briton received an offer for his two-bedroom apartment of AED1.5 million.

“We’ve just doubled our money,” an astonished Mr. Qurashi recalls muttering to his wife. “Let’s buy two more.”

Within four months, Mr. Qurashi says he had bought and sold eight more properties, joining the so-called flipping frenzy in Dubai. Investors would buy property and immediately sell, or flip it, for a better price as more and more speculators entered the market.

Investors, such as Mr. Qurashi, who had never developed real estate, were suddenly pooling foreign investors, hiring architects and buying land to construct projects. The mentality was “build it, and they will come,” explains Mr. Qurashi.

Within four years, Mr. Qurashi says he had started a brokerage called Premier Real Estate Bureau. In a 12-month period, he says the company sold 2,500 apartments, racking up about a $1 billion-worth of property sales. He says he bought land and spent AED205 million ($55.8 million) on the Great Britain island on The World.

By the end of 2008, Mr. Qurashi was driving a black Bentley Flying Spur. His top salesman, Raj Rayit, was also driving a Bentley. They coined the phrase “cruising gently in my Bentley” as the pair of south Londoners struggled to believe their luck.

“It was like the gold rush,” reminisces Mr. Qurashi.

But the rush ended abruptly.

Dubai’s standstill on its debts precipitated a collapse of the local economy as a bevy of highly-touted projects were mothballed or ran out of funding. These included The World, the man-made archipelago that was left unfinished and was plagued with legal disputes. The oil-rich neighboring emirate of Abu Dhabi had to marshal a $20 billion bailout to stave off a default.

House prices soon crashed more than 50% and investors like Mr. Qurashi were left sitting on useless land that no financial institution would fund for development. Investors fled Dubai, and Mr. Qurashi found himself tangled in a dispute with a business partner. Checks he wrote as collateral for an AED200 million real-estate deal were cashed and bounced—a criminal offense in Dubai—landing him a seven-year conviction.

In January 2010, Mr. Qurashi went from behind the wheel of a Bentley to behind bars.

The entrepreneur spent nearly three years protesting his innocence in Dubai Central Prison. He argued that the deal for which he wrote the checks had already closed, all parties had received moneys owed and that the checks were void and should never have been cashed. During a 40-day hunger strike, Mr. Quarashi shed 33 pounds, helping to highlight the tycoon’s case in the local media. He was acquitted on appeal and freed in July 2012.

“My friends say I probably had it easy,” jokes Mr. Qurashi. “I didn’t have to suffer two years of major financial crisis in Dubai.”

Despite a more diversified economy and good intentions by developers, questions still remain over the underlying health of Dubai’s current economy—particularly its debt pile. Companies that are partly or wholly owned by the government have restructured debts and some, such as Nakheel, have repaid bank lenders in full. These deals have largely pushed the time frame for repayment into the future, easing each company’s ability to service loans.

New measures have been taken to help regulate real-estate speculation. Developers now have to fully own land and must place a percentage of the construction costs in an escrow account before marketing the development to investors. Sales transaction fees have increased to deter speculators from “flipping” properties, while some developers have lock-in periods for investors who buy properties before they are finished and handed over. And the Central Bank has introduced caps on mortgages to ensure more responsible lending by banks.

Sheikh Ahmed bin Saeed Al Maktoum, the ruler’s uncle and one of the most senior leaders in Dubai, also believes the economic resurgence is different from the last boom and bust. The previous crisis was exacerbated by poor investments made by government-linked entities overseas, and financiers and investors are now lining up to fund developments in Dubai, he says.

ENLARGE

The planned $6.8 billion Mall of the World, depicted above, is a centerpiece of Dubai’s new development. Photo: Mall of the World

Yet some argue that Dubai hasn’t really solved its debt problems at all since it hasn’t managed to cut the overall borrowings, and so it has “kicked the debt can down the road,” according to Jason Tuvey, an economist at London’s Capital Economics.

In July, the International Monetary Fund estimated Dubai and its entities’s debt at $141 billion or 141% of GDP, before recent restructuring and repayments by Nakheel, which reduced overall debt slightly.

But the overall figure is likely to increase going forward with some of Dubai’s new government-backed projects requiring financing, says Mr. Tuvey.

“There’s no reason to think that Dubai’s debt problems are over by any means,” he says.

While in prison, Mr. Qurashi vigorously tried to learn the law to appeal his innocence. His daughter Sara launched a Facebook campaign to free her father. But mostly, the property tycoon was busy planning new businesses in prison.

Since his release more than two years ago, Mr. Qurashi has again built a growing real-estate firm, benefiting from the frothy property market. He says the U.K. was in a similarly difficult economic position in 2012 as Dubai, so returning home wasn’t an appealing prospect.

Mr. Qurashi says he took a small loan from an investor to again get started after he left prison. He won’t name that investor but says the loan was repaid after 6 months when his companies began making a profit. Renamed the Q Group, Mr. Qurashi says his business includes a brokerage, a security firm and a development arm that are all now profitable.

He still has a flashy car. Gone is the black Bentley, but he cruises round in a dark-blue Porsche Panamera, a hugely popular car in Dubai. He still smokes a pack of Marlboros a day.

For six towers, the Q Group has partnered with Empire Arabia, a Pakistan and Canada-based real-estate investment firm that will soon be based out of Dubai. Empire invested “tens of millions of dollars” in six plots, which stalled in the previous bust and have since been revived with the Q Group as joint-developer and sales representative, according to Ahmad Furqan, director of Empire Arabia.

Dubai is a somewhat “wild” real-estate market that still needs to be “tamed a bit,” says Mr. Furqan. But for those with a long-term time horizon, it offers a “wonderful” opportunity, he says. “Any city is going to make mistakes.”

Despite his progress and the vote of confidence from investors, Mr. Qurashi is also again falling foul of government institutions. He recently announced an agreement with Drydocks World, owned by the Dubai government, to provide marine utility services in developing on the Great Britain-themed island. But then Nakheel, owned by the government, issued a statement outlining that he had not yet fully paid for the plot on The World and could not start work with Drydocks.

Mr. Qurashi says his legal team is renegotiating the payment program for the Great Britain island and once that plan is in place, development can start. A Nakheel spokesperson said legal proceedings were currently ongoing to ensure it received final payment.

Nakheel also released a statement on Jan. 22 that said Dubai’s courts system had ordered Mr. Qurashi to pay AED11 million ($3 million) to Nakheel for land on another project of the government-owned developer. Mr. Qurashi said Nakheel’s statement was misleading and that the judgment is part of an ongoing dispute over additional payments for land he says he had already purchased prior to the financial crisis.

Meanwhile, Mr. Qurashi’s business is about to move into some plush offices in the new Downtown Dubai area developed by Emaar, epitomizing both his rebirth and that of Dubai, he says. Walking round the empty space, he explains the new mentality in the city-state.

“Build what they want,” he says. “And they will come.”

Corrections & Amplifications

A property was offered to Mr. Qurashi for AED1.3 million ($354,000). The currency conversion was misstated in an earlier version of this article.

Write to Rory Jones at rory.jones@wsj.com