Real estate in the UAE drives into fog of crisis

There was an air of confidence among UAE property developers at the start of the year.

There was an air of confidence among UAE property developers at the start of the year. The first residents had moved into Nakheel's Palm Jumeirah, the first of the reclaimed Palm island trilogy development, while the world's tallest tower, the Burj Dubai, climbed steadily towards completion. Success with such never-been-done-before projects, from skyscrapers surrounded by racing tracks to villas flanked with replicas of the Eiffel Tower, fuelled developers' appetites for more.

Even smaller firms got into the act. Infinity Holdings launched Isla Moda - billed as the world's first fashion island - in January at The World, where 80 homes will be designed by Karl Lagerfeld. Developers with a passion for Europe hinted at building replica versions of Venice, London and Lyon in Dubai. Stallion Properties came up with plans to bring the Greek island of Santorini to Ras al Khaimah.

But by this summer, the landscape of the UAE's property sector had started to change. A global economic slowdown was gaining momentum and would reveal a decidedly darker outlook by the end of the year. "Either the pace will drop or the prices will," Richard Rodriguez, the former chief executive of Emaar in Dubai, said in September. "Both cannot be sustained in this market condition." Nakheel began the year as a premier developer of prime waterfront projects. Its Palm Jumeirah offered homes by the sea and it sold more than half of the 300 islands that make up The World. The Universe, another group of reclaimed islands, would be developed between Palm Jumeirah and Palm Deira.

Trump International Hotel and Tower, the company's venture with the US property magnate Donald Trump, also gathered momentum. Having undergone a redesign in 2006, and with one buyer snapping up a penthouse for a record Dh110 million (US$30m) in June, the project was ready to be built on Palm Jumeirah. About the same time, David Fisher, the architect behind the Rotating Tower, a project he hopes to build in Dubai, invited the world's press to a lavish event in New York, where plans for the building were unveiled.

With the release of Plan Abu Dhabi 2030, the city began a programme of urban planning, albeit in a more conservative way. Construction of a Formula One racing track was already under way and a number of island projects were taking shape. The emirate then announced Mubadala Development's Sowwah Island, a project that would be the core of Abu Dhabi's new central business district, and Masdar City, a zero-carbon and car-free city.

The UAE is "a hub for one third of the world and a place where you feel safe at 3 o'clock in the morning. Its culture is developing more and more. We are genuinely in a history-making time," said Soheil Abedian, the chief executive of Sunland Group, the developer of several towers and the Palazzo Versace Hotel in Dubai. But as global credit markets seized following the collapse of the US investment bank Lehman Brothers in September, the country became caught up in the world's credit crisis almost overnight. "We're all going through a period of downsizing as we're all forecasting a slowdown in growth and reduction in demand, so it's going to be a tough year," said Bishoy Azmy, the chief executive of ASGC, a Dubai contractor that shed 1,000 jobs this month.