By Shashank Bengali | McClatchy Newspapers

DUBAI, United Arab Emirates — Dubai has built its name on realizing the unbelievable and, often, the unnecessary: the world's new tallest skyscraper, an indoor ski slope, a constellation of faux islands molded to resemble a map of the world.

Never a place for the meek, the glitzy commercial capital of the Middle East nonetheless has begun to wonder whether the global economic crisis will bring its high-flying real-estate market in for a rough landing.

Shares in government-backed Emaar, the Middle East's biggest developer, are down more than 60 percent this year, mirroring a widespread selloff in Dubai real estate. Property values are still rising, but much less dramatically. EFG-Hermes, an Egypt-based investment bank, recently projected that Dubai's real estate market could shrink by as much as 20 percent by 2011.

Although no one's pronouncing Dubai's boom a bust, many here think that the get-rich-quick days — when investors could count on astronomical returns within months — are numbered.

"We don't think those days are at an end, but we're telling people it's not like it used to be," said Hamed Shirvani, a polished young investment manager whose clients include wealthy businessmen in Russia and his native Iran. "No more returns of 80, 100, 200 percent, probably."

That amounts to a shock in Dubai, where easy credit and political stability have lured investors from around the world, transforming a sleepy desert sheikdom into a postmodern cityscape of soaring steel and shimmering glass.

"The global environment, the fact that core Dubai trading partners such as the U.K., Russia and parts of Asia are either in recession, close to recession or at least contracting substantially, all this is going to be felt in Dubai without a doubt," said Philipp Lotter, a Dubai-based analyst at the Moody's credit-rating agency.

"Will there be a soft landing or will there be a crash? I wish I could give you the answer to that."

To be fair, Dubai's slowdown looks nothing like the beating that the U.S. real-estate market has taken. Property values still rose 16 percent in the second quarter this year, according to Colliers, a real estate research firm, a sharp decline from the 46 percent increase of the first three months of 2008 but far outpacing nearly everywhere else in the world.

Of greater concern to analysts is Dubai's high level of debt. State-backed firms have borrowed huge sums to meet a seemingly endless demand for property and now carry a total debt of nearly $50 billion, more than the value of Dubai's entire economy in 2006, according to Moody's. Unlike the six other semiautonomous city-states that compose the United Arab Emirates, Dubai has relatively scant oil revenues to fall back on.

Dubai's leaders say they can meet their debt obligations for now. To calm investors' fears, the UAE government, based in the richer if less flashy emirate of Abu Dhabi, guaranteed all deposits in national banks and injected more than $13 billion to keep the economy churning.

"In the long run, Dubai slowing down is not going to impair its reputation," Lotter said. "What would impair its reputation is not slowing down and then coming into difficulties."

Demand remains robust — Dubai continues to add about 200,000 residents a year — and at the top end of the market this is still a place of lavish dreams.

Earlier this month, record crowds flocked to Cityscape, a major property fair, where developers unveiled some $180 billion in head-spinning new projects, including a new, half-mile-high skyscraper that would eclipse the world's current tallest, Burj Dubai, which isn't even finished yet.

"I was walking through Cityscape and thinking, 'There's no sign of a global recession here,' " said Hamza Mustafa, an executive with the giant state-backed developer Nakheel, which plans to build the record high-rise for $38 billion.

Luxury villas in Nakheel's Palm Jumeirah — a collection of artificial islands shaped like a palm tree — have recently sold for about $2,000 per square foot, more than 30 percent above market prices, Mustafa said. And they're not finished yet, either.

"What's happening in the world is affecting Dubai. Are developers going to slow down? I believe, yes," Mustafa said. "Are they going to slow down drastically? So far there are no indications of that."

And there could be some good news in the long run.

Developers see an end to the widespread practice of "flipping," buying an unfinished property and selling it at a profit, often multiple times before it reaches the final owner. Flipping attracted hordes of speculators and jacked up prices to unsustainable levels, while developers took years to complete projects.

"Before, an investor would sit on something for six months and flip it," said Wasim Islam, the commercial director for Universal CanLink, a midsized residential property firm. "Now the buyer is king. You cannot have a mediocre product anymore."

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