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Dubai's frenzied, trillion-dollar building boom falters

The global credit crunch and falling oil prices are taking a toll on the superrich Gulf emirate as developers mothball high-profile projects and lay off workers.

By Ben GilbertContributor / December 4, 2008

Stalled: Real estate prices have dropped as much as 50 percent in Dubai, putting the breaks on glitzy development that has drawn the world's wealthiest to the emirate.

Steve Crisp/Reuters

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Dubai, United Arab Emirates

A battery of fireworks marked the climax of the $20 million grand opening ceremony for the $1 billion Atlantis Hotel. Flashes of red and white illuminated dozens of construction cranes, which have become fixtures in this glittering Gulf city amid a decade-long, trillion-dollar building boom.

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But the frenzied pace of development in Dubai and elsewhere in the United Arab Emirates is grinding to a halt and the over-the-top extravagance on full display late last month at places like the new Atlantis, at the tip of one of Dubai's three man-made, palm-tree shaped island archipelagos, may soon be a thing of the past.

The global financial crisis has brought construction to a stop as developers put projects on hold, lay off workers, and scale back several high-profile ventures.

And although Dubai's economy is not based on oil wealth, it's efforts to become the service hub for the Gulf region means it very well may feel the effects of falling oil prices (around $47 a barrel Wednesday) worse than its sister city, Abu Dhabi, which is cushioned by its possession of 10 percent of the world's petroleum reserves and a massive sovereign wealth fund.

The global credit crunch and investor uncertainty has led real estate prices to drop and Dubai's stock exchange to nosedive in recent weeks.

The Dubai Financial Market has lost nearly 70 percent of its value since the summer. Leading that loss have been real estate companies. Dubai's Emaar Properties, builder of the soon-to-be tallest building in the world, the Burj Dubai, has lost 75 percent of its value since January on Dubai's exchange.

The real estate industry, including construction, makes up an estimated 30 percent of Dubai's economy. Apartment and villa prices in Dubai, on average, had doubled since the beginning of January 2007. But now real estate agents like Jean-Pierre Sedaghat say some premier property prices have dropped as much as 50 percent. Before the crisis hit, apartments in the Burj Dubai averaged about $1.7 million.

"At the beginning of Dubai, it was in one day you can buy the property in the morning and sell it in the afternoon," says Mr. Sedaghat. He says sales are down 40 percent from last year.

"The real estate market has stalled," says Paul Allen, who runs the website and blog Estateagentsdubai.com. He released a survey of more than 100 real estate agents in Dubai last month in which half said they hadn't sold a property in the past month.

Top 10 global builders

Square footage for under-construction office space in June. Numbers in millions.

1. Dubai, UAE – 42

2. Shanghai, China – 41.6

3. Guangzhou, China – 19.8

4. Paris – 18.6

5. São Paulo, Brazil – 15.6

6. Washington – 14

7. Seoul, South Korea – 13.4

8. Moscow – 12.9

9. Beijing – 12.3

10. St. Petersburg, Russia – 12.2 (tie) Kyiv, Ukraine

Source: Colliers International

 
 

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