Now the boom has ended, and ended abruptly. Things started to slip last October. Developers that had relied on off-plan sales to finance their projects found their source of financing drying up. Turning to the banks was of little use because loans for property developers were no longer forthcoming. Banks have also scaled back lending to buyers. At least one international bank had cut its number of staff in the mortgage lending department from 10 to three, no longer lends money for off-plan purchases and has reduced its lending limit on completed properties with specific developers from 75% to 50% of the market value of these properties.

Some of the property companies worst hit by the crisis are those whose customer base is heavily reliant upon foreign investors. Nakheel has put some projects on hold and officially made 500 of its workforce redundant, although the real figure is suspected to be much higher. Foreign investors who have bought property on Palm Jumeirah have witnessed prices on the secondary market plummet by up to 40%. Other areas of the emirate are faring just as badly. For developers whose financing sources have dried up, the future does not look good.

Damac is another company in which many western Europeans have invested. Many of its projects are not going ahead and it has made at least 200 redundancies. There is always some risk involved in property investment but now the risks, especially in Dubai, have been highlighted. Undoubtedly there will still be some good bargains available, but investors will have to look hard to find them.

Lucia Dore is the Gulf correspondent at mergermarket, part of The Financial Times Group.

E-mail: lucia.dore@mergermarket.com