Soaring 200 storeys and 828 metres into the sky, the world's tallest structure has opened in Dubai, a monument to the excesses of the emirate's bygone boom. But while the $1.5-billion (U.S.) tower's striking opulence recalls the unrestrained era of a massive property bubble, its surprise name is very much grounded in Dubai's new reality.
Originally called Burj Dubai, it was renamed Burj Khalifa Monday in a tribute to Sheik Khalifa bin Zayed al-Nahayan, head of the United Arab Emirates and ruler of Abu Dhabi, which came to debt-laden Dubai's financial rescue last month.
Abu Dhabi has provided about $25-billion in bailout funds for Dubai in the past year, including a $10-billion lifeline in December that was funnelled to state-owned conglomerate Dubai World to avoid an embarrassing default on its crushing debt load.
"Dubai is giving a nod to the help that's come from Abu Dhabi," Nick Chamie, the global head of emerging markets research at RBC Dominion Securities, said in an interview.
"It is a respectful sign to the rest of the people in the United Arab Emirates that they have a debt of gratitude to Abu Dhabi," he added. (Dubai and Abu Dhabi are two of the seven UAE states.)
The Burj Khalifa is sure to be the last major building project in Dubai for some time as funding for the region's ambitious development has disappeared amid an economic sobering that is likely to persist for years.
The unveiling of the world's tallest structure at a glitzy ceremony Monday stands in sharp contrast to the financial crisis that has enveloped the Dubai city-state.
As access to cheap credit has dried up, real estate prices in the Las Vegas of the Middle East have been gutted. Apartment prices in the new tower, which took five years to build, surged to as much as $2,700 a square foot at their peak in 2008. They are now worth less than half that.
Mohammed Alabbar, the chairman of Emaar Properties, the developer of the Burj Khalifa, insisted Dubai has a bright economic future despite its current debt woes.
"Crises come and go. And cities move on," Mr. Alabbar told reporters Monday. About 90 per cent of the properties in the building, which include a mix of residential, retail and commercial space, have been sold.
"We build for years to come … We must have hope and optimism," Mr. Alabbar said.
Despite the help from Abu Dhabi, Dubai is still struggling with about $100-billion in debt that its state controlled corporations will likely have to restructure. Dubai World said Monday it had paid obligations related to a loan and a bond issue that were due. It is expected to pitch a formal standstill proposal on its debt payments to creditors this month while it comes up with a restructuring plan.
The ostentatious new tower, which boasts a hotel designed by Giorgio Armani and an observation deck on the 124th floor, could struggle to find tenants because so many of the developer's sales were financed through mortgages.
"I'd be surprised if there were no defaults and if vacancy rates didn't creep up," Saud Masud, a Dubai-based analyst at UBS told Bloomberg News. "This is a symbol of the economic momentum that Dubai had and an ironic reminder of its property bubble."
Indeed, it wasn't long ago that Dubai's property market was among the world's best. The city-state's population surged to 1.3 million people from about 700,000 in 1995, as Dubai reinvented itself as a destination for the wealthy and as the financial hub of the Middle East. Even as the financial crisis was in full swing, Dubai held a lavish $24-million opening ceremony for the Atlantis Hotel on Nov. 24, 2008, less than two months after the collapse of Lehman Bros.
But Dubai's weighty debt load, fuelled by easy access to capital for outrageous building projects, eventually caught up with it. In November, 2009, Dubai World roiled global markets when it said it needed a standstill on billions of dollars of debt repayments.
Even with Abu Dhabi's assistance, Mr. Chamie of RBC expects Dubai World or other state-controlled companies to eventually default on some debt obligations.
"We've come through a period of excess across the board and Dubai was the most striking example of that irrational exuberance," Mr. Chamie said.
"Moving forward, I think a lot of people will be pointing to this [tower]as a monument to previous excesses."