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Dubai's skyscrapers may teeter rather than tower

Dubai wants to build the tallest skyscraper in the world. If that sounds familiar, it's because it's a repeat of an old and successful plan to make real estate instead of oil the economic lifeblood of the Persian Gulf emirate. But, this time, others are getting in on the act too. Dubai's towering projects will be exposed to the same laws of gravity affecting its more oil-dependent neighbors in the region.

Dubbed the "Dubaiffel" tower, the $1 billion project will exceed by "a notch" the 828-meter record set by the city's Burj Khalifa, according to Mohamed Alabbar, the chairman of its developer Emaar Properties. The Dubai-listed company will borrow half the money it needs to build the project, which is expected to draw investors to the redevelopment of Ras al-Khor, one of the few remaining patches of desert close to the city's prime coastal strip that hasn't already been built on.

The timing isn't great. Crude oil trading below $50 per barrel since last November has made real estate investors in Dubai more cautious. Secondary sales of luxury apartments - normally a barometer for the market - fell by three per cent in some areas in the first nine months of last year, according to Cluttons. The market is expected to worsen with the broker forecasting overall prices to fall by up to five per cent this year.

The introduction of new regulations designed to curb real estate speculation for off-plan properties, which offer the greatest potential for a quick profit, have also coincided with the slump in oil prices. Wealthy investors from Saudi Arabia accounted for $2.6 billion of Dubai property sales last year, compared with $7.1 billion from local investors.

Dubai's strategy of building ever higher is also being tested by growing competition in the region. The new tower will compete with another record breaking skyscraper planned to open at the same time in Saudi's coastal city of Jeddah. Dubai is relatively insulated against oil prices. But, its neighbours aren't. That means it will face tough competition in filling its towering new structures, and a heap of financial risk.