MONEY MATTERS

“We are still in an environment where we are vulnerable to financial shocks of any sort and this is one of those,” said Russell Jones, head of fixed income and currency research at RBC Capital Markets. Just when the markets were starting to regain their confidence, Dubai threatens to destroy it.
The extent of investors concern about the news from the emirate pushed Britain’s leading stock market index down 3.2%, the biggest daily fall in nearly nine months.
There are new fears that Dubai might be forced into a fire sale of assets, which would push asset values down further. Shares in the London Stock Exchange for instance, on Thursday lost 60pence to 754pence as the Dubai exchange owns a 20% stake in its London rival.
Dubai has also been a big investor in commercial property around the world. The nascent recovery seen in London could be wiped out if cash is withdrawn.
Investor angt has been heightened because the announcement of a standstill on debt repayments was made just ahead of the four-day Id holiday, meaning many questions will go unanswered until next week.
Why has there been a property bubble there?
Dubai was the epitome of the cheap credit property boom, with developers using inexpensive loans to finance grandiose building projects. Its plan to become a centre of finance and tourism pulled in millionaires and second home buyers, who were enticed by the homes on offer and rapidly rising prices – which fuelled the boom further.
Why do so many celebrities live there?
The sun, the sea, the shopping. And very low tax rates for permanent residents. What other reasons do they need?
Dubai wooed many big names, including England soccer stars Michael Owen and David Beckham, super model Naomi Campbell and Denzel Washington, to acquire palatial villas on the Jumeirah Palm, which is seen as a status symbol.
Guardian Newspapers Limited 2009

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