Posted By Vicki McClure Davidson on November 28, 2009

Outrageously lavish Dubai lifestyle and tourism for the rich and famous was not sustainable, is now crashing from billions of dollars of debt

Like I’ve always said, be wise, be frugal. Dubai didn’t listen. Can you spell “conspicuous consumption”?

When most of your income is dependent upon heavily financed property development and over-the-top, ritzy tourism, and the world economy is struggling… well, then, luxury hotel suites, the world’s largest mall, and an indoor ski resort in a desert make no sense. And it’s rather grotesque, IMO. Dubai’s government could soon be bankrupt if it does not receive support soon.

From AOL Daily Finance: The Dow dives more than 150 points on Dubai’s debt crisis:

U.S. stocks followed the rest of the world lower in a short Friday session after the state investment company of Dubai shocked global debt and equity markets on Thursday by asking for more time to make a loan payment, essentially admitting that it’s currently insolvent.

As banks across Europe, the U.S. and the Gulf region scrambled to assess their exposure to the Dubai debt crisis, money whooshed out of stocks in a global flight to safety that pushed up of the value of the U.S. dollar and U.S. Treasurys. The blue-chip Dow Jones Industrial Average ($INDU) lost 154.5, or 1.48%, to close at 10,309.9, while the broader S&P 500 ($INX) retreated 19.1, or 1.72%, to finish at 1091.5. The tech-heavy Nasdaq Composite ($COMPX) shed 37.6, or 1.73%, to close at 2138.4.

U.S. markets were closed on Thursday for the Thanksgiving holiday and, as usual, experienced low volume Friday before an early 1 p.m. Eastern close, which likely helped dampen the effects of Thursday’s global sell-off.

Dubai, until late Wednesday thought to be a sort of modern-day Shangri La or Timbuktu, raised the specter of looking more like Argentina, the last nation to default on its sovereign debt back in 2001. Oil-rich Dubai, famous for building a palm-shaped island, the world’s tallest building, an indoor ski slope and paying Rihanna $500,000 to perform at a New Year’s Eve party — wants a six-month reprieve from repaying a $3.5 billion bond.

Prophetic commentary, from last year:

The Young Turks: Dubai Building First Refrigerated Beach | December 2008

Fenton Report: Indoor Ski Resort! Ski Slope Mount The Mall of the Emirates | January 2008

From BBC News:

The inability of the government of Dubai to refinance the massive debts incurred by its largest state-owned company, Dubai World, has sent shockwaves throughout the world prompting many observers to ask not only how severe the economic crisis is, but also what exactly is Dubai and who is in control of it?

Dubai does not have the enormous oil wealth enjoyed by its neighbours such as Abu Dhabi. Its main source of wealth has historically been as a port.

In recent years it has sought to make money from property development and luxury tourism, building impressive hotels such as the Burj al-Arab.

The global downturn left many financial workers unemployed. The population fell an estimated 17%, meaning there was little demand for new properties.

There was also less demand for luxury holidays. Dubai companies have borrowed money to fund huge building projects such as “The World” and are now unable to repay it.

There are jitters on financial markets about who lent all the money. European banks are estimated to have lent more than £50bn to the whole of the United Arab Emirates.

Although frequently described as a city state or even as a country in its own right, Dubai is a constituent member of the federation of United Arab Emirates along with six other emirates.

Only one of these, Abu Dhabi, possesses substantial oil reserves, and as such it has dominated most areas of federal politics – including foreign affairs and defence – since the UAE was formed following Britain’s withdrawal from the Persian Gulf in 1971.

One of the Palm Islands, a string of atolls formed out of sand dredged from the Persian Gulf and shaped to look like palm trees. Soccer star David Beckham bought one of the first island villas put on the market, for a reported $16 million.

This recent financial dive from Dubai’s crushing debt should not be all that surprising to anyone. This information about Dubai was posted on March 3, 2009 by International Luxury Real Estate & Investment: Dubai Property Crash Update:

Dubai is crashing hard and fast. Property values are already down 50% from last year’s peak, and it is expected that there will be a similar drop this year. Combined with social and cultural issues, there is a danger that Dubai will never recover. Much of the boom was from speculative purchasers hoping for a quick buck, and they are a dying breed. If not completely extinct. Here is a selection of recent articles and websites detailing the on-going crash.

Dubai’s luxury real estate market is finished.

About Dubai:

Dubai is one of the seven emirates that make up the United Arab Emirates (UAE) on the Persian Gulf. Its emirate’s main city, sometimes called “Dubai City” to distinguish it from the emirate.

Dubai is the most populous and second largest emirate of the UAE after Abu Dhabi. Dubai is distinct from other members of the UAE in that revenues from oil account for only 6% of its gross domestic product. A majority of the emirate’s revenues are from tourism.

Dubai has become world famous place through innovative real estate projects, sports events, conferences and Guinness records. However, this increased attention, coinciding with its emergence as a world business hub have also highlighted potential human rights quagmires concerning its largely immigrant workforce.

From New York Post: Dubai mirage fading away:

Dubai, a sleepy kingdom of sand dunes just 30 years ago, blossomed into a tax-free business haven, a magnet for celebrities like Brad Pitt and Hilary Swank and a showcase for record-setting skyscrapers.

Today, it’s also a debtor state that has the world’s stock markets shuddering.

Word that the emirate could default on the $80 billion it borrowed during the boom years of the past decade sent the Dow Jones industrial average plunging 155 points yesterday.

The bad news also hinted that Dubai’s ruler, Sheik Mohammed bin Rashid al Maktoum, listed by Forbes as the world’s fourth-richest royal, was in serious money trouble and may be forced to sell off some of his prize acquisitions, such as the Queen Elizabeth II cruise ship and hundreds of golf courses around the world.

The family billed Dubai a tax-free, low-inflation financial paradise where — unlike in much of the Mideast — business was welcome. To show how serious the Maktoums were, Dubai went on a vast building spree that led at one time to its using a quarter of the world’s cranes.

Among the royal family’s monuments:

* The Burj Dubai, an office tower due to open in January that will be the tallest man-made structure ever built.

* The Palm Islands, a string of atolls formed out of sand dredged from the Persian Gulf and shaped to look like palm trees. Soccer star David Beckham bought one of the first island villas put on the market, for a reported $16 million.

* The Dubai Mall, which became the world’s largest when it opened last November. It has more than 1,200 shops and draws 750,000 visitors a week.

* The World, an archipelago of man-made islands in the shape of a world map. Individual islands sell for up to $50 million apiece. Among the rumored buyers are Pitt and Angelina Jolie, Rod Stewart and Sir Richard Branson.

* The Rose Tower and Burj Al Arab, two of the three tallest hotels in the world.

* Ski Dubai, an indoor ski resort that features 242,000 square feet of artificial snow-covered slopes and recreation areas.

The mega-expansion was accompanied by heavy promotion. And it didn’t hurt that celebrities seemed to be flocking to Dubai.

Swank and Demi Moore were photographed attending a film festival there. Donald Trump and state-owned developer Nakheel planned a skyscraper hotel on a Palm island.

Rocketboom: The Largest Building In The World | October 2008

From Daily World Investor, Banks with highest exposure in ‘Dubai World’:

The following Banks all have the highest risk factors exposed with loans to ‘Dubai World’: Dutch banker ING Group (NYSE:ING) — down almost 20%, Woori Financial Holdings (NYSE:WF) — down 14%, Shinhan Financial Group Co., Ltd. (NYSE:SHG) was down 9%, and HSBC Holdings plc (NYSE:HBC) — Dubai World’s biggest loan arranger since January 2007– closed down almost 6%.

Additional reading:
Brad Pitt Online: Is Brad Pitt’s Dubai dream in ruins?
American Thinker: Does Dubai debt crisis signal trouble for emerging economies?
Dubai’s Desperate Housewife: All Hail The New Year. Literally.
Breitbart.com: Dubai to open world’s tallest building
Blue Crab Boulevard: Exposure – Or why a relatively tiny place like Dubai could be big trouble for the American banking system.
Gateway Pundit: World’s Tallest Building Burj Khalifa Opens in Dubai and Iranian Regime Behind Plot to Blow Up World’s Tallest Building– 45 Arrested

Categories: Economy, Social and Political Climate
Tags: Abu Dhabi, Burj al-Arab, Dubai, Dubai hotels, Dubai World, Dubai's debt crisis, financial crisis, indoor ski resort, lavish lifestyle, palm hotels, Persian Gulf, refrigerated beach, stock market, tourism, United Arab Emirates, US dollar, video, world's largest mall, YouTube