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The global slowdown would hit hard many a project in the Gulf. But some mega-projects may continue rolling as they are backed by funds accumulated during the oil boom.
Nevertheless, a number of Dubai's over-hyped properties are going to suffer on two counts - fall in demand and lack of credit.
According to HSBC Bank, Dubai property prices fell four per cent in October - with villas falling by 19 per cent in four weeks from September to last month alone. Property prices in Abu Dhabi have even started falling. According to HSBC, prices were down five per cent last month.
There had always been questions about the sustainability of demand for real estate in the UAE, particularly in Dubai. Property prices had been rising almost constantly on foreign buying, sparking fears of overheating.
In addition, the banking sector is going through a period of tightening liquidity, which will affect developers most.
But it is a myth that if property prices fall in Dubai it would signal the end of the UAE investment story, says Beltone research.
Take the case of Qatar. Money may not flow for investment in the real estate sector. But, there is an undeniable commitment to spend on power infrastructure, as well as in the oil and gas sector.
In Saudi Arabia, although Aramco may delay several of its capacity boost programmes foreseeing an oil demand fall, infrastructure projects would continue to be funded as the state braces to satisfy the increasing needs of its rising population. Funds would be found to jack up the cement and steel industry, power sector and housing.
Kuwait would focus on the demand for commercial space. There is currently $100 billion designated for new urban developments, the bulk of which is accounted for by the Silk City project developed by Tamdeen.
Bahrain is injecting an extra BD30 million into its budget to keep work going on major developmental projects.
The aim is to complete all road projects on time and ensure that there is no backlog because of a budget shortfall.
Bahrain's real estate is a growth market, even in this time of global financial turmoil, says a leading Islamic investment institution.
With the lowest rate of inflation in the GCC and a real estate market by some estimates worth more than $5 billion, Bahrain's property sector is seen by many as a market with huge potential.
On the flipside, faced with a shortage of buyers and a deluge of distressed sellers, developers have started cutting jobs. Damac Group, the owner of private developer Damac Properties, would cut 200 jobs. Emaar Group, the bellwether of the Dubai property scene, has yet to lay off staff, but the chances are that it would.
Abu Dhabi developers are also reconsidering projects. Sorouh is accelerating the delivery of projects, while looking to secure long-term income from rental rather than sales. Al Qudra Holding is targeting middle-income buyers as opposed to the high-end market, while the liquidity squeeze has prompted TDIC to review its yet-to-be-announced projects.
The Dubai government has set up a committee to review the feasibility of major developments. Aldar Properties is taking a more cautious approach, although it remains outwardly confident that the strong fundamentals that make up the economy will shield it from a severe storm.
Some analysts predict a wave of consolidation across the industry, with the big players snapping up struggling ones.
Other industry experts say the slowdown is a good thing. Not only will it weed out speculators, but it will also lead to a more stable and normal market, where people buy homes to live in.
In other sectors, Aluminum Bahrain, or Alba, which operates one of the Middle East's biggest smelters, may delay a big capacity expansion.
A fear of weakening demand for aluminum amid a global economic slowdown may delay the company's expansion. The company has plans to more than double annual output by 2012.
Ma'aden, a Saudi minerals company, was reviewing a big bauxite mining and aluminum project it was developing with a division of Rio Tinto, citing the "current international financial climate."
Financing for billions of dollars in planned water and utilities projects could also be threatened by difficult financing markets, industry executives say. Despite huge oil-fuelled budget surpluses, many governments have sought to spread the financing burden for large projects to international partners, who have rushed to the region to take advantage of the boom. Some big power and water projects can be as much as 60 per cent to 70 per cent debt-financed.
Abu Dhabi's state power and water utility is among those struggling to raise funds to build new plants.
The saving grace is that the slowdown has had the positive effect of cutting down on the rampant inflation levels, which had accelerated over the past two years. The market was overheating and being trampled by constant increases in the prices of raw materials, labour and contracting costs. These should now return to stable levels.
