Do-Buy / The construction zone

As world's economy crumbles, Dubai keeps on building.
Dubai's property developers are still thinking bigger than everyone else - despite growing fears that the Middle East will not be immune to a global slump

The Burj Dubai, the world's tallest building, rises above the city

Sharif Shafei, PR supremo for a leading Dubai-based developer, can certainly talk the talk. Words like brand, vision, iconic and ambition trip easily off his tongue – all to convince you that it's business as usual in the world's hottest real estate market.

Shafei, an engaging Egyptian-Canadian, works for a company behind huge construction projects in neighbouring Saudi Arabia, Qatar and Morocco, all cashing in on an oil-driven boom and Dubai's reputation for cutting-edge architecture, boundless imagination and high returns.

"I am telling people to continue to invest in real estate," he insisted. "There is no bubble that's going to burst."

In a week that saw panicky stock markets, falling oil prices and credit growth outstripping deposits, the brashest economy in the Middle East barely paused for breath. And with annual growth of nearly 18% since 2001, it's easy to see why. Indeed, across the Gulf, the overall real estate market has been valued at a whopping $1.3tr (£750bn).

Property prices in Dubai have increased by 40% since January and by almost 80% in the last 18 months, though there is now some evidence of a slowdown. Worries about a downturn coincided with Dubai's annual property fair, Cityscape, which filled the cavernous World Trade Centre with eager salesmen, glittering displays of extraordinary buildings and promises of secure investments.

The real estate company Nakheel, owned by the Dubai government, and so in effect by the ruler, Sheikh Mohammed Bin Rashid al-Maktoum, turned heads by unveiling plans for the world tallest tower at a cost of $38bn. But the next day Meraas Development's Jumeirah Gardens complex came in at a show-stopping $95bn.

This is an emirate where record-busting skyscrapers and artificial islands are the norm, and which is already building the world's largest theme park and shopping mall and planning an Eiffel tower bigger than the real thing. So some people weren't that impressed.

"Dubai is fixated on the largest, it's a PR thing to attract attention, publicity and tourists," laughed Shafei. "Dubai," said Sina al-Kazim, chief executive of Meraas, "has always reinvented itself."

Smooth PR, lavish entertainment and celebrities like formula one champion Michael Schumacher added lustre. Michael Douglas and Catherine Zeta-Jones graced one party at the $1.5bn Atlantis Hotel on Palm Jumeirah island. Kelly Rowlands of Destiny's Child wowed guests at another flashy reception.

But if the public message was one of unbridled confidence, there was an undercurrent of concern that didn't feature in the sales pitches, press releases and shiny brochures.

Cityscape exhibitor Khaled al-Ali, resplendent in flowing white dishdasha and headdress among the dark suits, made no attempt to hide his fears. "It's a bit scary," he admitted. "Customer perception, misinformation and the size of the projects are all a bit too much. The wow factor makes it hard to make a decision. People believe in the companies and in Dubai but they want to know what's coming next. If banks are collapsing it might affect them."

Dubai is long used to defying normal behaviour: this tiny emirate, one of the seven states of the United Arab Emirates, has an economy second in size only to regional giant Saudi Arabia, even though it has relatively little oil.

Of its 1.3 million people, 80% are non-native foreigners, including 100,000 Britons. Many more are the south Asian labourers whose grim lives and working conditions were highlighted in the Guardian this week.

Its unique status as a regional hub for business, leisure, and travel means much investment is international rather than local – and that some will see it as a safe haven in stormy times elsewhere.

Warning signs about its property market have been visible for some time. There is concern about corruption allegations against property and banking executives. And worries too about speculative money propping up the market despite government efforts to slow rapid buying and selling, the so-called "flipping", of properties.

And late last month the UAE Central Bank made $13.6bn available to maintain liquidity in the face of a local credit squeeze.

"On the one hand you have the fact that Dubai's government will pour as much money as is needed into any element of the economy to see it safe," commented one property newsletter. "But on the other hand you have to be realistic about these things and ask, where will the people come from to live in these mega housing estates and to shop in these huge malls?"

Away from the futuristic towers, parts of Dubai provide glimpses of a world that is fading away: on the famous creek, lined with Iranian banks – a reminder of the brooding power across the Gulf - picturesque wooden abras nip between the dhows.

Across the greenish water on the Deira side, opposite the British embassy and the ruler's palace, the streets have a subcontinental feel that recalls the old adage about the UAE: "Emirates stands for English-Managed, Indian-Run, Arabs Taking Enormous Salaries."

In a place built on confidence and the projection of confidence the idea of failure seems inconceivable. The consensus is that a slowdown or a "correction" of property prices, and delays to some existing projects, are likely, but a crash impossible. "The message here is that it's still party time," says Professor Abdelkhaleq Abdullah, a political scientist. "Everyone else is in crisis - but Dubai always sees the opportunity."

Ref: The Guardian, UK