Word: dubai
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...gloom and doom, however. The United Arab Emirates, a federation that includes Dubai and six other states, has made $33 billion available to banks to calm the nerves of U.A.E. depositors and investors. And if the credit crunch shakes out property speculators and slows Dubai's growth to a more sustainable level, it should have the added benefit of taming inflation. "I am not necessarily thinking we are in a crash scenario," says EFG-Hermes managing director Hashem Montasser. "The economic situation is still very sound. [But] we will see a deceleration of prices, and it's probably a good...
...Dubai's biggest risk is its reliance on debt to drive its breathtaking building boom. Moody's has estimated that Dubai's government and public-sector company debt was at least $47 billion, a staggering 103% of the emirate's 2006 GDP. The rating agency said it expected debt to outpace GDP for an additional five years, making Dubai very exposed to financial and geopolitical risks...
...Dubai officials insist that they can meet their debt obligations for the next two years. But the credit squeeze clearly compounds some growing challenges to Dubai's revenue streams. The most obvious of these is the plummeting price of oil, from $147 to less than $65 per bbl. since July, rendering regional investors increasingly cautious as they dial down their expectations of untold wealth. And a global recession is likely to tighten the belts of the foreign investors and vacationers who have driven demand for Dubai's real estate and tourism developments...
...reason for the relative lack of panic so far is that Dubai real estate remains a financial haven for wealthy individuals from less stable countries like Iran and Pakistan. What's more, Dubai's property sector is dominated by a handful of companies--collectively dubbed Dubai Inc.--that are directly or indirectly owned and controlled by the government. Some argue that Dubai's authorities could thus avert a bubble burst by keeping finished projects off-line until conditions improve. Also, in the event of a systemic threat, Dubai can probably rely on superrich Abu Dhabi for a bailout...
...away. He knows the easy sales may be over. "People are more educated and calculated," says Ahmed. "Now they are asking for a more detailed sales pitch. They want to know about the developer's track record." That's no bad thing. Prudence may be the key to preserving Dubai's appeal in uncertain times...