Those lucky enough to find themselves in Dubai next New Year’s Eve, and in particular those with a room booked at the Atlantic Palm Jumeirah Hotel (the hotel on the famous palm-shaped artificial island), can rest assured that they will find it hard to forget the first day of 2009. Sol Kerzen, the South African entrepreneur who together with his local partners owns this complex, is working on what he describes as the “party of the century”. A 20 million dollar party that will be attended by over one thousand world-famous stars, among them Robert De Niro and Michael Jordan, and that will finish with fireworks “seven times more impressive than those at the opening ceremony for the Beijing Olympic Games, so amazing they will be visible from outer space”.

This extra-deluxe New Year’s Eve dinner epitomizes the spirit and the philosophy of a city, Dubai, that over the past five years has elected itself as the capital of opulence, uncontrolled shopping and consumer excesses. The Emirate, one of the seven forming the United Arab Emirates, is now effectively a sort of mall-city, to the extent that it is informally known as “Do-buy”. And yet the party of the century as Kerzen calls it, risks being a sort of watershed, the highest point of the city’s economic trajectory from which the path is now only a downwards one. And moving very quickly too. The property bubble is bursting right now and for Dubai this may be the equivalent of the arrival of the barbarians was for the Roman Empire.

“Property prices have dropped by 20/35 percent since September,” says Rahab Jawda from the al-Jabak al-Aqariya estate agency, with an eloquent gesture. And that is just the average, considering that in some exclusive districts prices have fallen even more. Those who bought villas on the palm-shaped island, for example, have seen their investment value drop by 40% in a few weeks. No one wants to buy now and everyone wants to sell. Estate agencies have started to dismiss staff. Damak, one of the largest in Dubai, has decided to sack 200 employees, indicating that the competition will soon be obliged to do the same. The property crisis risks having a lethal effect on Dubai, since it was precisely thanks to this sector that the city took-off during the last five years. From an anonymous Middle Eastern city Dubai became a sort of New York with its many skyscrapers, business centres, five star hotels and shopping malls.

Futuristic buildings such as the Burj al-Arab Hotel, shaped like a sail, and the Burj Dubai, the tallest skyscraper in the world, are now a myth of the past. Investors and wealthy owners competed to buy property, causing a constant rise in prices. A particular phenomenon was ‘flipping’, on the basis of which homes were bought and sold even three times even before being built, thereby increasing in price on each occasion. This explains why once this ‘doping” was over, the Dubai economy now runs the risk of burning a blaze of billions and billions of dollars. And with the money the city will also lose its ambition to be the capital of opulence in the Middle East, ready to welcome wealthy western tourists.

What suddenly vanished from Dubai was the fuel used for any expansion based on property: cash. The bubble burst because of the credit crunch. The banks experiencing problems due to the global crisis started to ration mortgages and consequently the possibility of buying homes and offices. Until recently they were ready to loan money with only a 10 percent down payment and this percentage has quickly risen to 40%. This was an unavoidable credit squeeze, because so many banks are in troubled waters; the government of the Arab Emirates was obliged to intervene last week to save two banks. The situation worsened with the crisis experienced by the local stock market, which since January has lost about half its value, thereby contributing to burn more cash. This affected matters to the extent that Mohammed Alabbar, President of the government committee set-up to address this crisis, was obliged to deny rumours of possible financial default by Dubai. Of course, should the city manage to survive this crisis, the feeling is that nothing will be as it was before. One reason more for attending the “part of the century”.

Translation by Francesca Simmons