A visitor at the new Atlantis resort in Dubai, where rooms cost as much as $25,000 a night. Now, some expensive projects under construction may be in jeopardy. DUBAI, United Arab Emirates — On the surface, this glittering Arabian boomtown seems immune to the financial crisis plaguing the global economy. Feverish speculation in Dubai is yielding to apprehension. The skyline still bristles with cranes — an estimated 20 percent of the world’s total — and the papers are full of ads promoting spectacular new building projects. On Sept. 24, tourists from around the world flocked to the opening of Atlantis, a gargantuan, pink, $1.5 billion resort hotel built on an artificial, palm-shaped island. There was no shortage of people willing to pay as much as $25,000 a night for a room, to gaze at the sharks and rays in a vast glass-lined aquarium in the lobby and to dine at marquee restaurants like Nobu and Brasserie Rostang. But as recession looms in the West, cracks are appearing in the oil-fueled boom that has made Dubai, with its futuristic skyscrapers on the turquoise waters of the Persian Gulf, a global byword for unfettered growth. Banks are reining in lending, casting a pall over corporate finance and building plans. Oil prices have been dropping. Stock markets across the region have been falling since June. After insisting for days that the oil-rich Persian Gulf region was fully “insulated” from financial troubles abroad, the Emirates’ Central Bank made about $13.6 billion available on Sept. 22 to ease credit problems, in an echo of bailout measures in the United States. Already, some bankers are saying it is not enough. Some of Dubai’s more extravagant building projects — the ever-bigger malls, islands and indoor ski slopes — are likely to be dropped if they do not already have financing lined up, bankers say. The credit crisis could also reduce demand from buyers, who will have a harder time getting mortgages. The shrinkage will be more severe if the financial crisis worsens in the West. Property prices and rents, which have remained steady until now, are widely expected to start dropping soon. At the same time, investor confidence has been harmed by a long string of high-level corporate scandals, jeopardizing Dubai’s long-term ambition of becoming a regional financial capital. “Plenty of people are worried,” said Gilbert Bazi, 25, a real estate broker from Lebanon who moved here a year ago. “They are waiting to see if what happened in the United States will happen here.” When he first arrived, Mr. Bazi said, making money was almost absurdly easy. “Iranians, Russians, Europeans — everybody was buying,” he said. “I didn’t have to call people; they were calling me.” Now, Mr. Bazi stalks the lobbies of hotels, trying to find clients. “The market is sleeping,” he said. In fairness, Dubai still looks rosy when set against the financial turmoil elsewhere. Although it lacks the oil wealth of its sister emirate Abu Dhabi, Dubai has huge budget and current account surpluses, and the government of the Emirates federation is able and willing — like its Persian Gulf neighbors — to inject an almost unlimited amount of money into the system to ease credit problems. The governments of Saudi Arabia and Qatar have reaped so much profit from oil and gas in recent years that they are more worried about how to spend it than about managing any downturn. But the Persian Gulf’s governments face real economic challenges, albeit ones that are profoundly different from those in the West. Until recently, credit in Dubai was growing by 49 percent a year, according to the Emirates’ Central Bank — a rate almost double that of bank deposits’ growth. That unnerved some bankers here, who felt it could lead to a collapse. “In the U.S., the challenge is about keeping the banks going,” said Marios Maratheftis, chief economist for Standard Chartered Bank. “Here, the economy has been overheated, a correction is needed, and it’s about making sure the slowdown happens in a smooth, orderly manner.” If that sounds like an easy problem to have, consider the manic vicissitudes of Dubai’s real estate market. Speculators often got bank loans to put down 10 percent on a property that had not yet been built, only to flip it for a huge profit to another buyer, who would do the same thing, and on and on. That was easy to do when housing prices here were surging so fast that some properties multiplied tenfold in value in just a few years. But the Dubai authorities began getting nervous about this and imposed new regulations this summer to limit speculation.
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Sunday, 5 October 2008
Ali Haider/European Pressphoto Agency
The New York Times
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