MELISSA BLOCK, Host:
Now to the Persian Gulf where economies are fueled by massive oil wealth, and where many people believed they were immune from the global financial crisis. Well, it seems they were wrong. Trading on the Kuwait Stock Exchange was halted on Thursday after shares plummeted. The Dubai Stock Exchange is at its lowest point in four years. And here is something familiar - the real estate sector is hardest hit. NPR's Peter Kenyon visited Dubai, and he found that fear has replaced rampant optimism.
PETER KENYON: Let's get one thing straight: This corner of the United Arab Emirates is still the home of outrageous excess and conspicuous consumption. Dubai's newest fantasy destination is Atlantis, a luxury hotel sprawling across one of Dubai's many man-made islands. For just under $10,000 a night, guests can stay in one of two three-story underwater suites named Neptune and Poseidon. The bedroom windows look out on a giant aquarium where some 65,000 specimen of marine life, including a whale shark, the biggest fish in the sea, swim in what looks like a movie set version of the legendary lost city. For another view of fish, Atlantis also offers the Dubai outpost of Nobu, the ultra-fashionable sushi restaurant. Not far away at the larger-than-life Mall of the Emirates, skiers are still snowplowing their way down the indoor slope, while in another corner of the mall an earnest young real estate sales woman makes her pitch to Russian visitors.
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KENYON: But beneath the shimmering photos of sun-kissed villas, there is an air of growing desperation. And another real estate kiosk, property consultant Atman Shah(ph) says units are no longer being snapped up the way they once were, and high-end luxury sales have all but died off.
ATMAN SHA: Recently there is a slowdown in the market and it's not like before, either the fear people are more - resulting to more economical properties as compared to last time.
KENYON: In fact, Dubai's super-heated real estate sector, whereby one account properties were flipped, or bought and quickly resold, an average of 16 times after the original sale, seems to be taking new hits on a daily basis. One giant developer, Damak Holding, just laid off 200 workers. The stock of another behemoth, Amar Properties, traded last year at the equivalent of $13 a share. It closed Thursday at 87 cents. Some projects are quietly being delayed, and analysts say others maybe canceled altogether. Economist Eckhart Vertz(ph) at the Gulf Research Center says the region's banks had a relatively limited exposure to the sub-prime mortgage debacle. But in the area of financing, the type of massive projects the UAE is famous for, Vertz says there is no insulation because much of that financing was acquired through foreign banks.
ECKHART VERTZ: And of course, these are the national banks now have increased their prices, only the money at home to plug their holes in their balance sheets. Here, the whole project finance market gets hit very hard and the Gulf, especially the over-heated real estate market in Dubai.
KENYON: The crisis of confidence here has exposed other myths as well. Islamic banking, for instance, was seen as an alternative type of financial institution. But economists now say Islamic banks are responding to the same incentives and pressures as ordinary banks, and many Islamic banks are deeply tied up in the looming Gulf real estate downturn. In neighboring Abu Dhabi, spending was far more restrained until the 2004 death of Sheikh Zayed bin Sultan Al Nahyan. But since then, spending has ballooned and Abu Dhabi will also face a measure of pain next year. Amid the growing gloom, however, it's important to remember that Abu Dhabi has the largest sovereign wealth fund in the world, and most Arab Gulf states boast huge surpluses from the days of $140 barrel oil. Mary Nicola, an economist with Standard Chartered Bank, says the Gulf States are in a relatively strong position for 2009, which will likely feature more government intervention in the markets and a new focus on keeping their money close to home.
MARY NICOLA: I think you'll see across the world that you're going to see this repatriation of funds and repatriation of cash. For example, here it's likely that the government is going to want to keep the money at home as it will try and focus on fiscal spending and key infrastructure projects rather than anything else.
KENYON: Economist Eckhart Vertz agrees that government intervention will grow, and he's curious to see how hard-line free market disciples will respond.
VERTZ: I don't know whether there's still somebody believing in the self-healing market forces, but I know the market is not self-healing, it's self-mutilating manic depressive.
KENYON: Peter Kenyon, NPR News Dubai. Transcript provided by NPR, Copyright NPR.
