From many quarters there is even a note of satisfaction at Dubai's difficulties. Its dizzy growth over the last 15 years defied the style and values of many other regional centres, and, say its critics, that capitulation to Western interests is now coming back to bite it.

For the real estate sector, the £20 million party thrown in November to mark the opening of the Atlantis Hotel on Nakheel's Jumeirah Palm island, seemed to be Dubai's last hurrah. Such a glorious snub to the global credit crunch was seen as either typically lavish, or grossly inappropriate. Added to the extravagancies that are the Palm, the Burj and Ski-Dubai developments, the writing, said detractors, was clearly on the marble-faced wall.

In November, real estate sector flagship Nakheel abruptly cut 500 staff (15% of its workforce) and announced it would go slow on some projects. Property giant Emaar saw its shares drop to record lows. Damac Group, owner of leading private developer Damac Properties, axed 200 jobs (2.5% of its payroll). The UAE's pipeline of $1 trillion of construction and infrastructure projects started to be affected.

Perspective

But the 'slowdown' should be put in perspective. Figures show UAE real estate growth could slow from 20% to 13% in 2010 – that is a rate most enterprises would still consider robust. And government officials have hinted that state-controlled property developers will turn off the supply taps to help stem price falls, if necessary.

Other markets are blossoming as Dubai wilts. Bahrain believes its real estate sector is secure, although affected. A report from Jones Lang Lasalle asserts that Saudi Arabia's real estate market is set to grow strongly over the next four years, driven by a growing economy and strong demographic fundamentals. Its nominal GDP of $608 billion is the region's largest, some 20% greater than the other six Gulf Co-operation Council (GCC) countries put together. For five years economic growth has been increasing by an average of 15% a year.

The Kingdom's real estate market also has more commercial (office, retail and residential) floor space than all the other GCC countries combined. The current stock is planned to increase by more than 60% by 2012 to offset major shortages in the residential sector.

Abu Dhabi's increased financial profile has fuelled hopes it will pick up as Dubai starts to flag. The emirate has already announced the launch of a government backed lender, Abu Dhabi Finance, a $136 million venture including Abu Dhabi Commercial Bank, Aldar, Mubadala Development Company, Sorouh Real Estate, and the Tourism Development and Investment Company. But experts in the region expect no favourable terms for struggling firms in Dubai. "Abu Dhabi will be there, not to bail out, but to buy out," commented one. "This is the time for it to asset its seniority as the capital of the Emirates."

The region's stock markets, like those elsewhere, have taken a hammering. In November GCC stock markets fell to their lowest level in four years, after a $220 billion drop in October. Their collective market capitalisation plummeted to around $595 billion on November 28, a decline of about $127 billion, according to the Joint Arab Stocks Data Base at the Abu Dhabi-based Arab Monetary Fund (AMF).

"The capitalisation in the region's bourses has dipped below their real value or performance," AMF Chairman Jassim Al Manai said. "This is because their prices actually reflect their expectations about future performance amidst the current global financial crisis and its repercussions." Saudi Arabia's Tadawul was again the main victim, losing nearly $62 billion, almost half the region's losses, due mainly to its large capitalisation and a speculative element.

Various exchanges are adopting different defensive strategies, with corporate action near the top of the list. Local reports said Bahrain was contemplating a staged sale of its stock exchange to Singapore Exchange Ltd (SGX), starting with close technical co-operation.

Hussein Zeineddine, head of Structured Finance at Kuwait Financial Centre (Markaz) notes: "We introduced several draft laws and regulations to bring new trading instruments in the stock markets, especially for options trading and derivatives. We were expecting the approval of the laws by the end of the year. However, the recent developments in the financial industry and in regional stock markets have created a new trend among financial policy makers...we do not expect laws of such significance to be passed in the near future."

On the exchanges, there have been some high profile casualties, notably in the banking sector. In November Kuwait's Gulf Bank, the country's second biggest lender, revealed it had lost a total of $1.4 billion on derivatives deals. The bank said it would double its capital to raise an amount equal to the losses in order to restore shareholders' equity to its level before the crisis, but the collapse resulted in the board's almost immediate departure.

The UAE authorities have had to bail out Emirates Development Bank, which itself had absorbed the struggling Islamic mortgage lenders Amlak and Taweel Finance.

Bahrain's Central Bank has delayed the granting of eight new investment banking licences. Bahrain-based Gulf International Bank, owned by the Saudi Arabian Monetary Agency and the governments of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, admitted a $757.3 million net loss from 2007, mainly due to the US sub-prime mortgage crisis, and had to raise $1 billion in new capital.

Chief executive officer Khaled Al-Fayez, who set up the $30 billion bank in 1976, was replaced by Yahya Al-Yahya, a Saudi national who was the executive director for Saudi Arabia at the World Bank in Washington.

A report in December from Washington-based Institute of International Finance said the six GCC states would not allow the collapse of any key banks, and were in a position, with state control, to ensure that support. Low levels of debt, still-high energy revenues and conservative lending policies have left them with more options than their counterparts in developed markets.

Within the region, there are niches which are actually benefitting from the global financial turmoil. Global Investment House has secured licences to launch three new funds while hedge fund manager Brevan Howard Offshore Management has listed two new funds on Nasdaq Dubai. Banks like Kuwait Finance House, and Iran's Milly Bank, are consolidating their regional hold.