Sunday, November 30, 2008

More cracks in Dubai property market

...But in recent weeks the cracks in Dubai's economy have become undeniable. Property prices have slumped, demand has dried up and, for the first time, the emirate is being forced to consider calling a halt to its expansion. Some analysts are claiming that Dubai could implode, weighed down under a pile of debt and, given that it has relatively small oil reserves, no obvious way of paying for it. One said: "This has been the most spectacular spending mission on Earth. But it's a mirage. If complex debt structures have brought the financial world to its knees, Dubai is the world's biggest toxic timebomb."

The possibility is absorbing Western firms. The Middle East, floating on a magic carpet of vast oil and gas reserves, was supposed to be the oasis in the global financial chaos. The hopes of the financial system, most obviously the banks, have been pinned on securing cash injections from the Middle East, while hundreds of thousands of City workers are looking to the region for new jobs. If Dubai can't pay its debts, much of which is owed to international banks, the emirate could turn from potential saviour to yet another big problem.

Last week, at Dubai International Financial Centre (DIFC) Week, a series of international business conferences, Dubai's authorities scrambled to address the mounting speculation by unveiling for the first time details about its financial position.

Mohammed Ali Alabbar, a member of Dubai's executive council and chairman of Emaar Properties, which owns the Burj Dubai among other landmarks, said the emirate's borrowings amounted to $80bn against assets of about $350bn. He insisted: "The government can and will meet all its obligations."

While admitting for the first time that the Gulf was not immune to the global downturn, Dubai and its oil-rich neighbour Abu Dhabi unveiled a series of initiatives designed to tackle the dangers head-on.

Mr Alabbar announced that a special council had been established to look at each sector of the economy, in particular the crucial property market. The Advisory Council has been tasked with reporting in detail the state of the economy to the Ruler Sheikh Mohammed Bin Rashid Al Maktoum. The council members, who include Dubai's top representatives in "government finance, real estate, banking and equity markets", will also have to make proposals and recommonations managing "the current and future supply of new projects onto the market".


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