Dubai was once thought to be an economic miracle.   Dubai is the most populous city of the United Arab Emirates.   Dubai is home to massive construction projects such as The World Islands, The Palm Islands, the indoor ski park Ski Dubai, and the Burj-Al-Arab hotel.  According to Wikipedia, Dubai’s revenue comes from tourism, real estate and financial services. With the global economic crisis comes a triple wammy of a defeat to Dubai from those three suffering revenue sources.


From this recent New York Times article:

Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai’s fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.   Now, like many of the foreign workers who make up 90 percent of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city — or worse.

Some things are clear: real estate prices, which rose dramatically during Dubai’s six-year boom, have dropped 30 percent or more over the past two or three months in some parts of the city. Last week, Moody’s Investor’s Service announced that it might downgrade its ratings on six of Dubai’s most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale , they are sometimes sold for 40 percent less than the asking price two months ago, car dealers say. Dubai’s roads, usually thick with traffic at this time of year, are now mostly clear.

And from the thisismoney.co.uk article:

Is Dubai poised to become the Iceland of the Middle East? The news dripping out of the most populous city of the United Arab Emirates has been bad for months and worse is coming.

All of the factors that have so blighted Western economies are high on the Dubai checklist: rapid growth on the back of a property boom – tick, rampant lending to speculative borrowers – tick, takeovers built on debt – tick, blind optimism that the good times would never end – tick.

From the Financial Times:

Dubai’s recent surging population growth will reverse over the next two years as the troubled, but important, real estate and construction sectors cause the number of immigrants to slow and many expatriates to leave…

Over half of Dubai’s population is employed in the the real estate and construction industries, which are suffering from oversupply and a dearth of financing. Property prices fell 8 per cent in the fourth quarter…

Dubai’s entire population of approximately 1.2 million is almost exclusively expatriates (90%).  With property values plummeting, and expatriates leaving en masse, Dubai will soon learn the hard lesson of leverage.  Leverage is great on the way up, but it can cripple and destroy an economy overnight on the way down.  Iceland has already learned this painful lesson, and Dubai is next in line.