Moscow. (RIA Novosti political correspondent Andrei Fedayshin) - Although Dubai nearly approached total default in 2009, January 4 of the new year is once again the Big Day in Real Estate; the world's tallest building - the Burj Dubai or Tower of Dubai - opens in the emirate, which is three times bigger than Moscow and has the financial appetites of the universe. The building has 160 floors of hotel rooms, as well as very expensive apartments, offices and shops.
The tower should be entered into the Guinness Book of World Records on five counts: its height, number of floors and a few other technological building records. And if you go to the top, which is 818 meters high, you can see Tehran, Baku or Cairo, at least in theory.
However, those who deal with global finances, debts and defaults see something else from the height of the Burj Dubai: an unfair system of reselling real estate before it has been built (options), which involves banks in the sort of construction booms that very often end in the collapse of construction companies, massive bankruptcies, loss of money by private investors and loss of trust in financial institutions in general. But the most difficult question is whether government guarantees could be trusted when they back up many-billion-dollar bank loans even in the oil-rich Middle East? Also, have we overcome the period of wildcatting and unjustified and unverified banking and financial risks, or have we not learned anything from last year's financial crisis?
By and large, Dubai is an aftershock of the financial earthquake in the United States and the rest of the world. Money here was mostly made on very risky but profitable real estate options. These options are like futures contracts, which deal with incomplete construction rather than real estate as such. Such options were bought and sold at a profit expressed in two-digit numbers. They were bound to cause a huge bubble.
Dubai is lucky to have good neighbors. In December Abu Dhabi gave Dubai an Islamic loan of $10 billion (officially such loans do not have interest, but they are paid off through all kinds of bonuses, involvement in business, etc.) to cover part of its bad debts (officially Dubai's debts are $59 billion, unofficially they are as high as $80 to $100 billion). If Dubai had not received this Islamic loan, the personal possessions of His Highness Mohammed bin Rashid Al Maktoum could have well been deemed insolvent.
Using crisis terminology requires caution with regards to Dubai, which is very sensitive to being associated with the phrase "Dubai in crisis." So much so that when the British Times analyzed the emirate's financial prospects in December, it left blank pages in its Dubai edition rather than include the article.
Last spring, when Dubai was celebrating the inauguration of yet another building marvel, the Atlantis Hotel, the fireworks could be seen from space. Now celebrations will be less pompous, though still on a grand scale.
At first sight Dubai has not been affected too much, but this is a false impression. Almost 60% of the grandiose construction projects have been frozen or brought down to a minimum. Some 40% of new offices could not find tenants by late December. According to British banking experts, in 2010 the area of unoccupied office space will double, while the cost of real estate has fallen by more than 30% and continues going down. The construction of villas on the artificial Palm Islands has been suspended. Most of this construction was being carried out by Dubai World, which has found itself on the verge of bankruptcy and almost dragged down the entire country.
The financial problems of the ruling dynasty of Dubai, which owns everything in the emirate, will have no impact on Russian banks. Their risks connected with Dubai real estate were negligible or non-existent, despite the fact that our oligarchs and wealthy people have many possessions in Dubai and have become frequent guests at all sorts of grand-scale gala parties, shows and presentations reminiscent of One Thousand and One Nights tales. Slavic models are brought in there en masse by aircraft, although Dubai and the other emirates were a provincial backwater at the times of Sinbad the Sailor (he is said to be born not far from Dubai, in Oman).
However, the Dubai crisis will completely change the structure of investment on the Arabian peninsular. Investors are likely to leave Dubai for Saudi Arabia and Abu Dhabi. For the least ten years Saudi Arabia has been trying to attract foreign investment for construction, technical re-equipment and a large-scale modernization of its infrastructure. Abu Dhabi, which is the largest and most oil-rich emirate (accounting for 90% of the country's territory and 80% of its oil production), has similar plans.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
