The Burj Dubai tower opens on Jan 4 even as hundreds of other building projects in the emirate are mothballed

NEXT month’s opening of the Burj Dubai tower, the world’s tallest building, will bring Dubai’s era of exuberant expansion to a shuddering halt as hundreds of other building projects are already mothballed.

Plunging property prices and weak demand had already put a dampener on new schemes even before last week’s shock announcement by state-owned giant Dubai World that it wants to halt debt payments for six months.

‘It’s not exactly going to improve investor confidence,’ said Matthew Green, associate director at property agency CB Richard Ellis (CBRE), which has reported a 55 per cent year-on-year drop in downtown Dubai commercial rental rates and a 67 per cent fall outside the centre.

The 800m tall skyscraper is the centrepiece of a US$20 billion new shopping district, Downtown Burj Dubai, which also includes 30,000 apartments and the Dubai Mall, which claims that its space for 1,200 shops makes it the world’s biggest indoor shopping centre.

The tower, whose needle-shaped upper section is visible from 15 km away, stands on one side of a popular piazza, thronged with strollers in the evenings, when a fountain gushes in the central lake.

Developer Emaar has officially announced that Burj Dubai tower will open on Jan 4, the fourth anniversary of Mohammed bin Rashed al-Maktoum’s accession to power in Dubai.

Under construction since 2004, the opening of the steel-and-glass landmark has unofficially been put back from late 2008, but no further delay is likely for fear of loss of face by Emaar, which has not escaped the impact of the global property downturn.

It is keeping quiet about how many tenants it has found for the 160-storey building, and the company’s plan announced in June to merge with state-owned Dubai Holding gave the impression that stockmarket-listed Emaar was not in the healthiest financial condition.

That impression was reinforced on Thursday by ratings agency Standard and Poor’s Corp, which included both Emaar and Dubai Holding among six state-linked companies that it downgraded to junk bond status.

Despite the debt crisis that unfolded last week, Dubai remains a bustling city full of eye-catching sights.

The city state’s iconic national symbol is the three km long Palm Jumeirah artificial island, full of luxury villas whose owners are said to include David Beckham and Brad Pitt.

Immigrant workers were still busy yesterday beavering away on a dozen new housing projects on the island, but Palm Jumeirah’s developer Nakheel had halted plans for two more islands even before its credit woes were broadcast around the world last week.

Nakheel’s US$3.5 billion Islamic bond programme, due for repayment on Dec 14, is the main deal immediately affected by parent company Dubai World’s debt standstill.

All over Dubai, work was still in progress yesterday on dozens of more modest projects, although most are buildings near completion, with the scaffolding only remaining around the upper storeys.

Grand schemes such as the Burj Dubai and Palm Jumeirah are a thing of the past.

The World, an enormous project for artificial islands shaped like the continents, is now no more than a group of sandbanks, and no-one expects Nakheel to go ahead with a one km tall tower announced a year ago.

Market research company Proleads has estimated that projects worth US$582 billion or 45 per cent of the value of all developments, have been put on hold in Dubai or the other members of the United Arab Emirates.

The turning point in Dubai’s seemingly relentless ballooning growth came exactly a year ago, on Dec 4, 2008, when state-owned Meeras suspended plans that it had announced only two months previously for a US$95 billion city within a city called Jumeirah Gardens.

Now the question under discussion is not whether Dubai will go on growing but whether Sheikh Mohammed can stop the city going into sharp decline.

‘Lease rates are below those of 1996, a reflection of the true extent of the downturn,’ CBRE said in its third-quarter report on the commercial leasing market, written before Dubai World suspended its debt payments.

Rents for homes are down by as much as 48 per cent, and CBRE noted: ‘Newer areas are faring comparatively badly in the downturn when compared to more established communities.’

CBRE’s Mr Green said that his company is not seeing many newcomers to Dubai looking for apartments, as ‘there is not a lot of hiring going on’.

‘We have witnessed a rise in movements either to larger apartments which were previously too expensive, or to the lower end of the market where terms are more flexible and rates lower, due to continued fear of job security,’ he said.

But those are people who already live within the Emirates transferring to a different neighbourhood, Mr Green said.

Even if there was continuing demand for new homes and offices, Dubai’s debt crisis means that investors would be likely to think three times about putting up the money, especially to any state-linked company.

‘Although the authorities are at pains to say this is corporate default and not sovereign, it undoes all the implied security of ever wanting to do business with any state entity in Dubai this side of 2020,’ said Manny Cranus, an analyst with London’s MF Global.

‘Trust is a very expensive commodity and can be very quickly squandered,’ he said.

Source: Business Times, 5 Dec 2009