Dubai’s property market has crashed. Among the five artificial offshore islands that were being built to accommodate homes for millionaires, four remain in the planning stage. Dubai is wallowing in debt. The crisis started last year, during the peak of the property bubble and when the cranes stopped its operations.
On Nov 26, it received another shock when Dubai World, a big holding company, said it will defer its debt repayment of $3.5 billion, which is due in December, for six months. Unlike Abu Dhabi, its Emirate cousin, Dubai has been built on debt, instead on cash, having depleted its meager oil reserves long ago.
If Dubai is to survive, assistance from Abu Dhabi will be needed, but it will come at a price. Customarily, Abu Dhabi will want to control some of the excessive enthusiasm displayed by the flamboyant ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, who had plans of making Dubai not only an international hub, but a tourist and financial centre comparable to Singapore and Hong Kong. He also hoped that Emirates Airlines would become the largest in the world. However, it is now likely that Emirates Airlines will have to be transferred to Abu Dhabi as payment.
Although the crisis is an essential correction to the excesses of Dubai, it is too early to write off the city as a huge white elephant. Its infrastructure and geography, particularly its sea and air ports, are modern and Emirates Airlines has been making profits.
The impact of the Dubai crisis goes beyond the Gulf. If the construction boom retards across the Gulf, a lot of expatriate workers coming from South Asia will have to go back home without the remittances, which their families depend on. Hence, there will be significant fallout in Bangladesh, India, Pakistan and the Philippines.