After slump, Dubai says: We're back!

By Simeon Kerr, FT.com

December 31, 2012 -- Updated 0134 GMT (0934 HKT)

The world's tallest building, the Burj Khalifa, in Dubai.

STORY HIGHLIGHTS

• Dubai's Burj Khalifa New Year's eve celebrations to be most lavish yet
• Past celebrations muted after building opened in the wake of humiliating crisis
• Government is revelling in a recovery led by trade, tourism and the flight of expatriates
• Cash is flowing through the system, calming bankers' fears about the city's solvency

(Financial Times) -- For the two years since it opened in the wake of a humiliating financial crisis, the New Year's eve celebrations surrounding Dubai's Burj Khalifa building have been fairly muted. But this year developer Emaar is putting on a huge show combining a dancing fountain, the Prague Symphony Orchestra and plenty of fireworks. The message: The emirate is back with a bang.

Three years after Dubai shocked global markets with a warning it would be unable to repay its debts on time, the emirate wants to let the world know that its slump is history and that it is now embarking on its second economic boom in a decade.

Dubai's government is revelling in a recovery led by trade, tourism and the flight of expatriates from the violence of the Arab spring and the tax demands of European and Indian authorities.

Dubai may not be reducing its $110bn debt mountain, almost half of which matures between 2014 and 2016, but cash is flowing through the system, calming bankers' fears about the city's solvency.

Non-oil trade in the first 10 months of 2012 surpassed Dh1tn for the first time.

Passenger numbers through the airport are growing steadily towards 5m a month, fuelled by the fast-expanding Emirates airline, which is competing with global players as the Middle East becomes an increasingly important global transit node.

Western tourists are descending on the city to spend Christmas on the beach; early next year they will be replaced by Russians celebrating the Orthodox holiday; and later in January Chinese New Year will see a boost in the growing numbers of Asian visitors.

In response to this new-found optimism, the government has unveiled a series of grand real estate projects and some districts in the city have seen prices rise again on stronger demand from regional buyers in Saudi Arabia and India.

Nakheel, the indebted developer at the heart of Dubai's crisis, is launching new projects to take advantage of the recovering market. The developer says house prices on its reclaimed Palm island are back at 2008 levels, not far from their peak.

"We are seeing good demand -- not quite a boom, but a recovery," says Ali Rashid Lootah, chairman of Nakheel, which completed a $16bn restructuring deal last year.

Emaar has even teamed up with Dubai Holding, a deeply indebted company owned by the ruler, Sheikh Mohammed bin Rashid Al Maktoum, to launch a new city named in his honour that will house a Universal Studios theme park.

The city will include the so-called Mall of the World, a world record-beating shopping centre even larger than the massive Dubai Mall, which last year claimed to have more visitors than New York City.

"Now is the time Dubai will evolve yet again to become the world's city," reads the advertising slogan for Mohammed Bin Rashid City.

But beneath the hyperbole redolent of the debt-fuelled frenzy that ended in the collapse of 2008, some voices are warning that Dubai may be destined to repeat the mistakes of its recent history.

Many Nakheel customers are angry that the company is launching new projects while some of them have been paying mortgages for years on properties that are four years late.

"Yet again, it is thoroughly disappointing that a Dubai government-owned company should be launching new projects before completing existing ones, and still not delivering to homeowners what has been owed to them for years," said homeowner Nancy Zabaneh, whose property is already more than three years late.

The new Universal Studios project is a reminder that the company was an anchor tenant of Dubailand, one of Dubai Holding's failing projects that planned numerous theme parks and attractions in the desert outskirts of the city.

Many of these now lie half-complete or dormant on the drawing board, leaving investors stranded in the sand.

Dubai officials dismiss concerns that the city is lurching back to its pre-crisis days, when various executives close to the ruler -- many of them now back in power -- competed with one another to launch ever gaudier projects or buy crazier trophy assets with borrowed money.

They say their can-do attitude will save the city from the dour functionaries who because of the crisis were given the task of cleaning up corruption and restructuring failing companies.

"This city is about positivity, about allowing people to rise up," says one senior official. "Mohammed Bin Rashid City is not one project. This is Dubai 3.0."