Even glitzy Dubai shows some tarnish of downturn

DUBAI, United Arab Emirates — On the surface, this glittering Arabian boom town seems immune to the financial crisis plaguing the global economy.

The skyline still bristles with cranes — an estimated 20 percent of the world's total — and the papers are full of ads promoting spectacular new building projects. On Sept. 24, tourists from around the world flocked to the opening of Atlantis, a gargantuan pink $1.5 billion resort hotel built on an artificial palm-tree-shaped island. There was no shortage of people willing to pay as much as $25,000 a night for a room, to gaze at the sharks and rays in a vast glass-lined aquarium in the lobby, and to dine at marquee restaurants such as Nobu and Brasserie Rostang.

But as recession looms in the West, cracks are appearing in the oil-fueled boom that has made Dubai, with its futuristic skyscrapers on the turquoise waters of the Persian Gulf, a global byword for unfettered growth.

Banks are reining in lending, casting a pall over corporate finance and building plans. Oil prices have been dropping. Stock markets across the region have been falling since June. After insisting for days that the oil-rich Persian Gulf region was fully "insulated" from financial troubles abroad, the Emirates' Central Bank made about $13.6 billion available on Sept. 22 to ease credit problems, in an echo of bailout measures in the United States. Already, some bankers are saying it is not enough.

Some of Dubai's more extravagant building projects — the ever-bigger malls, islands and indoor ski slopes — are likely to be dropped if they do not already have financing lined up, bankers say. The credit crisis also could reduce demand from buyers, who will have a harder time getting mortgages.

The shrinkage will be more severe if the financial crisis worsens in the West. Property prices and rents, which have remained steady until now, are widely expected to start dropping soon.

At the same time, investor confidence has been harmed by a long string of high-level corporate scandals, jeopardizing Dubai's long-term ambition of becoming a regional financial capital.

"Plenty of people are worried," said Gilbert Bazi, 25, a real-estate broker from Lebanon who moved here a year ago. "They are waiting to see if what happened in the United States will happen here."

When he first arrived, Bazi said, making money was almost absurdly easy. "Iranians, Russians, Europeans — everybody was buying," he said. "I didn't have to call people; they were calling me."

Now, Bazi stalks the lobbies of hotels, trying to find clients.

"The market is sleeping," he said.

In fairness, Dubai still looks rosy when set against the financial turmoil elsewhere. Although it lacks the oil wealth of its sister emirate Abu Dhabi, Dubai has huge budget and current-account surpluses, and the government of the Emirates federation is able and willing — like its Persian Gulf neighbors — to inject an almost unlimited amount of money into the system to ease credit problems.

"We don't worry about it," said Hassan al-Hassani, 26, a civil engineer and an Emirati citizen who was drinking coffee late Wednesday night at a faux-Bedouin-style tent, set up among Dubai's skyscrapers in honor of the Muslim holy month of Ramadan. "Maybe it's good for things to calm down."

A few yards away, guests admired a miniature model of a new residential and commercial Dubai development called the City of Arabia, which includes what will be — if it is really built — the biggest mall in the world.

"Sometimes we wonder, will people really come to live in these places?" Hassani asked. But he quickly brushed off the thought with a smile, reminding his listener that native Emiratis — unlike the foreigners, who make up a majority of Dubai's 1.3 million residents — have a different perspective.

"Remember, 30 years ago almost nobody had phones here," he said. "There was maybe one tall building. My family only had one car."