Dubai braces for new year filled with uncertainty

Dec 30 03:07 PM US/Eastern
By ADAM SCHRECK
AP Business Writer


DUBAI, United Arab Emirates (AP) - The skyscrapers here have not stopped rising, and planeloads of hopeful migrant workers still fill a gleaming new airport terminal in the center of this modern Gulf metropolis.

The arrival this week of football star David Beckham for winter training and pop diva Shakira for a concert in nearby Abu Dhabi have added an electric charge to the air—even if New Year's parties are in doubt after the emirate's ruler reportedly called off all celebrations in solidarity with the Palestinians in Gaza.

Indeed, compared with war-ravaged Gaza and Baghdad, Dubai remains for many a shining Middle East success story. Yet the fallout from the economic crisis has forced this traditionally optimistic boomtown to eye 2009 with an uncertainty unknown for years, if ever.

Property buyers are disappearing. Consumers are holding on to their wallets. Job cuts have begun.

"It's certainly a jarring experience for many in the business community," said Aamir Rehman, author of "Dubai & Co.," a book about doing business here. "There have been recessions in the Gulf before, but those were before Dubai rose to the prominence it now enjoys. ... Most people working in Dubai have not seen this before."

The emirate's main stock market has lost more than two-thirds of its value in 2008. Oil prices, which indirectly buoyed the city-state's economy by expanding the regional wealth, have fallen sharply from their July highs.

Suddenly, this city's swagger has been eclipsed by anxiety.

"People are very much concerned," said K.V. Shamsudheen, who has lived in the Emirates for 38 years. The expatriate runs a welfare organization and hosts a radio advice show for Indian workers who make up the largest share of Dubai's population.

He said he's been flooded with calls from worried lower and middle-class residents seeking financial help both on air and after hours.

"Many of them have taken loans. Now, when they lose their jobs they are not able to pay back the money," he said.

For analysts, much of the concern is centered around Dubai's debt load and its supercharged yet credit-financed building boom.

Moody's Investors Service, a leading debt rating agency, said Tuesday that the creditworthiness of the Emirates federal government—of which Dubai is one of seven members—remains as high as that of Italy or Portugal.

But earlier this month, the rating firm lowered its outlook on two Dubai-based banks and another two in neighboring Abu Dhabi emirate because of concerns about liquidity and falling stock and property prices.

Debt rating agencies have also been cutting their views on a number of companies with ties to the Dubai government. Standard & Poor's analyst Farouk Soussa warned in a recent report that risks have grown "as demand in the all-important real estate sector shows clear signs of abating, raising the possibility of a sharp correction" in property prices.

That has scared away many buyers. Others still willing to take the plunge find it's tough to get loans. In turn, many of Dubai's largest property developers have scaled back some major projects to focus attention on those already in progress.

So sudden has the change of fortunes been that one new state-sponsored company recently announced it was reassessing the start of a $95 billion real estate project just two months after it was launched.

Another developer, Nakheel, said it was delaying construction of a hotel being built with Donald Trump on one of three palm-shaped islands it is developing. The company laid off 500 workers, or 15 percent of staff, last month.

The pain in the property and financial sectors is rippling out to the rest of the economy.

The chief executive of Dubai-based market research firm YouGovSiraj.com said online research carried out by his company and Middle East employment site Bayt.com indicates consumer confidence continues to fall in the UAE.

In the past, declining consumer confidence was "driven by inflation and people's ability to keep up with that," CEO Nassim Ghrayeb said in an interview. "Now there is more a sense of insecurity about the future, especially in terms of job security."

He said consumers in the region are cautious of big purchases, and wait for sales when they do buy.

"People are definitely in bargain-hunting mode," he said.

Dubai's hotel industry, a fast growing segment of the economy, is also feeling the pinch.

Habib Khan, chief executive of the hospitality division of Dubai's Planet Group, said his company's three hotels likely won't join a promotion spearheaded by the Dubai Department of Tourism and Commerce Marketing to sharply slash rates to attract more visitors.

But he said it's become much harder to fill rooms in recent weeks and business was down 20 to 25 percent in the first half of the month.

"We got spoiled here," Khan said, describing occupancy rates of up to 90 percent or more until recently. "In the last couple years it was a sellers' market and the hotels were dictating the rates."

"Now hoteliers have to go and get the business. It's not coming automatically," he said.