The Middle Eastern port and real estate giant Dubai World may have rejected a chance to avoid the current credit situation is faces. According to the Al-Itihad news paper, Dubai World totally rejected a request to auction off some of its high performing real estate assets in order to clean up its balance sheet. This news comes just three days after the real estate giant rocked the global markets with a request to postpone debt payments until at least may.
This is adding fuel to the accusations that Dubai World and its controlling shareholders, the Dubai government acted irresponsibly and caused unnecessary pain to the global financial system already reeling from the housing crisis. The news came on black Friday; usually a slow trading day. The Dow Jones Industrial Average sank more than 150 points while Asian markets tumbled almost 5%.
Fears of financial turmoil affected everything from commodities to currencies. Gold sank after hitting a record high of $1195 just a few hours below. Crude oil prices also dipped $4.17 a barrel on fears that an economic slowdown would cause demand to slow.
The real estate subsidiary Nakheel is up on a hard deadline to pay bonds coming due in December totaling $3.5 billion. With both public and private debt, the small city state of Dubai owes over $80 Billion to foreign creditors. This issue is sure to put an end to the rapid growth and expansion of Dubai.
The rulers of Dubai envisioned a modern city with luxury as its main focus. Dubai is home to the first seven star hotel and indoor ski slope. Dubai is a city state with membership in the United Arab Emirates. Unlike oil rich fellow Emirate Abu Dhabi, Dubai has no natural resources to speak of. The meteoric economic boom seen in Dubai is almost exclusively driven by speculation. In the early years of the 21st century, the speculation looked good.
For the rulers of Dubai, the sky seemed to be the limit. Luxury was their aim. This small city state was the architects’ playground. As the construction swallowed up all available acreage, the visionary leadership of Dubai decided to expand into the ocean. Now, Dubai is home to some of the largest man made islands in the world. The expectation was to build as many square feet as possible as soon as possible.
However, the seemingly endless economic prosperity was soon to come to an abrupt halt. The credit crunch of fall 2008 caused the real estate market to all but collapse. In America this caused layoffs and bank collapses. However, in Dubai, a nation driven by real estate, the small city state was hit hard. Officials in Dubai were banking on corporation in to take advantage of the almost nonexistent tax laws to finance the lavish lifestyle of the population, and offset the costs of their mounting debt. However, with millions of square feet of office space and apartments vacant, and no signs of being filled, the luxury of the sea side state is starting to take its toll on its financial stability.