The Debts of the Lenders: Dubai Dreams Become Nightmare

Straight off the wire. So let's see who has exposure to overbuilt luxury real estate: Dubai's government, property developers (including Donald Trump), the banks that lent them exorbitant leverage (e.g. Deutsche Bank), suppliers, construction materials, and basically 3/4 of the advertisers in Architectural Digest.

=DJ FOCUS: Dubai's Palm Sees Property Prices Sink As Hype Fades

By Stefania Bianchi Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Dubai's Palm Jumeirah, the self-proclaimed 'eighth wonder of the world', has become a symbol of the emirate's economic vulnerability as plummeting real estate prices unravel its boom town image.

Leading brokers say that prices on the development have slumped 50% since September, while local newspaper classifieds list hundreds of luxury villas and apartments on its 16 fronds as owners try to off-load unwanted homes. A four-bedroom garden home now lists for 6.5 million U.A.E. dirhams ($1.8 million), down from AED14 million last July.

"Palm Jumeirah was one of the catalysts of the Dubai real estate boom," said Edward Carnegy, a surveyor for CB Richard Ellis Middle East. "But the gap in the prices investors were willing to pay, say in mid-2008, compared to the finished article was huge and needless to say, unsustainable."

Once the best-known symbol of Dubai's recent, explosive growth, Palm Jumeirah now looks to be one of the biggest victims of the emirate's property slump.
Dredged from the seabed of the Persian Gulf at a cost that rose to more than $12 billion, the vast Palm Island project helped catapult Dubai into the ranks of the world's most desirable locations.

That status is now under threat as real estate prices plummet and the government struggles to cope with $80 billion of debt.

Last week, some brokers said prices on Palm Jumeirah dipped below AED1,000 per square foot for the first time since prices began to fall last year.
At the height of the boom, some of island's signature villas sold for $12 million, while a penthouse in the planned Trump International Hotel & Tower reportedly sold for a Dubai record of more than $30 million in June.

Since then, the $1.1 billion hotel and apartment tower, being built in partnership with U.S. real estate magnate Donald Trump, has been put on hold, leaving a gaping construction hole at the center of the Palm's trunk.

And as the value of properties on the Palm sink, so to do the fortunes of its developer, government-owned Nakheel. The company, part of the vast business empire of Dubai's billionaire ruler Sheikh Mohammed bin Rashid Al Maktoum, is being forced to take drastic action to keep its business afloat.

Recent steps to cut costs include cutting 10% of its workforce and delaying construction work at two other offshore developments - Palm Jebel Ali and the Palm Deira. The company denies that Palm Jumeirah is suffering any downturn from the global economic crisis.
"Palm Jumeirah is one of Dubai's most recognizable icons; its success as a residential community and tourist destination will continue to grow," says Johann Schumacher, Palm Jumeirah's managing director.

By Stefania Bianchi, Dow Jones Newswires; +971 4 3644967; stefania.bianchi@dowjones.com
Copyright (c) 2009 Dow Jones & Co.