The world’s tallest building will open in Dubai in just five weeks’ time and visitors to its observation deck on the 124th floor will be able to look down on the half-finished buildings and empty construction sites that now litter the Gulf emirate.

Dubai’s once-booming economy has deflated and its property sector, with its ludicrous architecture and record-breaking buildings, has collapsed. An estimated 400 projects worth more than $300 billion (£180 billion) have been cancelled, shut down or are on a go-slow as developers try to cope with property prices that are down as much as 60 per cent.

Long-term residents and even the Government of Dubai have often seemed to be in denial about the seriousness of the situation but it was rammed home yesterday when Dubai World, the state-owned conglomerate, said that it was seeking a six-month standstill on its debts.

The group includes Nakheel, the property developer responsible for the huge Palm Jumeirah and The World developments built on reclaimed land off the coast. Dubai World’s $60 billion of liabilities represents nearly three quarters of the emirate’s total state debt and the possibility that the company might be struggling to meet its obligations shocked credit markets.

Credit default swaps, the cost of insuring against a debt default by Dubai, leapt by a quarter, or 100 basis points, yesterday.

The Government made the announcement that it would restructure Dubai World in a brief statement before everyone left for a three-day holiday, leaving a trail of stunned investors and creditors in their wake.

Just what will happen to Dubai World (and the state of Dubai) is unclear. If there is a fire sale of assets there will be plenty to choose from. Dubai World owns P&O ports, which it acquired three years ago for £3.9 billion, as well as investments with Las Vegas’s MGM Mirage casino group and a $1 billion stake in Barneys, the New York department store.

With appetite for acquisitions returning, a Dubai World fire sale could raise the unusual prospect of Western investors bailing out Arabs.

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