The artificial archipelago off Dubai’s coast has once again become a mirror of the emirate. Twenty years ago, it reflected ambition; in 2009, a debt collapse. Today it reveals something else: which of two thousand developers will survive the war, and who will end up paying for promises made by others.
A half-hour boat ride from Dubai’s waterfront brings you to the Côte d’Azur. There is a pink hotel, red canopies with white polka dots, yacht docks, and a street where artificial rain is switched on according to schedule while guests are handed brightly colored umbrellas. In the middle of the Persian Gulf, in a country where real rain is an event, pumps control the weather. Diesel generators supply the electricity because the complex is not connected to the municipal grid. In the spring of 2026, when the Strait of Hormuz became a combat zone, the cost of every liter of diesel feeding those generators became a matter of survival for the project.
This is The Heart of Europe, a $6 billion resort on The World, the artificial archipelago built in the shape of a world map. According to people familiar with the situation, its developer has cut staff, placed some employees on unpaid leave, and is now fighting lawsuits from investors and former workers. On its own, the story might look like an oddity from the society pages. In reality, it shows how the war that began on February 28 is reshaping Dubai’s real estate market, ruthlessly separating those who actually have money from those who had little more than renderings.
February 28: The Day Dubai Lost Its Insurance Policy
For more than two decades, Dubai’s model rested on one unspoken assumption: the emirate could be treated as an island of safety in a turbulent region. The wars in Iraq, the Arab Spring, the Yemen campaign, successive sanctions cycles surrounding Iran — all of these passed Dubai by and often worked in its favor. Capital fleeing regional hot spots came here.
The morning of February 28, 2026, destroyed that assumption. Following coordinated U.S.-Israeli strikes on Iran, announced by U.S. President Donald Trump as an operation against the nuclear program and the regime itself, Tehran retaliated across the Gulf. The death of Supreme Leader Ali Khamenei removed the restraint that had characterized Iran’s response in June 2025. Countries hosting U.S. bases came under attack. The United Arab Emirates, which had not participated in the strikes on Iran, nevertheless found itself among the targets because of Al Dhafra Air Base near Abu Dhabi and its alliance with Washington.
Figures released by the UAE Ministry of Defense are striking. By March 4, the emirates had been targeted by 189 ballistic missiles, 941 drones, and three cruise missiles. The overwhelming majority were intercepted. Three people were killed, migrant workers from Pakistan, Nepal, and Bangladesh. According to official data, those wounded by shrapnel and falling debris included citizens of roughly fifteen countries, including Azerbaijanis. Debris fell around Palm Jumeirah and near the Burj Al Arab, smoke rose over Jebel Ali Port, and Dubai International Airport sustained damage. On the night of March 31, a drone struck a Kuwaiti tanker anchored off the Dubai coast.
The direct physical damage to real estate was negligible. The real blow landed elsewhere: on the perception of Dubai as a place missiles could not reach. The authorities understood this better than anyone, which is why their first response was to control the imagery. The UAE Public Prosecution declared the publication of photographs and videos of the strikes illegal, while Dubai Police warned that disseminating information inconsistent with official statements could result in a prison term of at least two years and a fine starting at 200,000 dirhams, roughly $55,000. The logic is clear: in an economy where confidence is the principal commodity, a viral video of a burning skyscraper can cost more than the fire itself.
The ceasefire in effect since April 8 ended the mass bombardments but did not restore the old reality. Sporadic incidents continue, shipping through Hormuz remains tense, and fuel and food prices in the emirate have risen noticeably. It is against this backdrop that the story of one archipelago has to be read.
Twenty Years of Sand: From Showcase of the Emirate to Monument to Its Hubris
The World project was announced in 2003. Nakheel, the state-owned developer within the Dubai World conglomerate, reclaimed roughly three hundred islands four kilometers offshore and arranged them into the outlines of continents. From a marketing perspective, the idea was brilliant: buy yourself Ireland or Greenland. Islands were sold to celebrities and investment funds, while the archipelago became a symbol of the Dubai that built not because demand already existed, but because demand could be created.
Then came 2008. In November 2009, Dubai World asked creditors to freeze payments on roughly $26 billion in debt, and for several days global markets seriously debated the possibility of an emirate default. Abu Dhabi came to the rescue, providing $10 billion in December that year. The price of that rescue was visible in the symbolism: the world’s tallest tower, inaugurated on January 4, 2010, was named not Burj Dubai, as originally planned, but Burj Khalifa, after UAE President and Abu Dhabi ruler Sheikh Khalifa bin Zayed. During that cycle, Dubai housing prices fell by roughly half, according to various estimates. The World islands were effectively mothballed for years. Little moved across them except construction rumors and tourists arriving by seaplane.
The archipelago became a textbook lesson in overestimating one’s own strength. The rest of Dubai moved on, rebuilt itself, survived the 2014 oil-price collapse, the prolonged decline in property prices through 2019, and the pandemic, before launching yet another boom. The sandy map of the world, however, remained an unfinished showcase. The Heart of Europe project by Austrian developer Josef Kleindienst became the most high-profile effort to revive it: Germany Island and Sweden Island, the Côte d’Azur, and floating villas with underwater bedrooms.
I would not dismiss the idea. Dubai has already seen projects once ridiculed later become defining brands of the city. Still, The Heart of Europe has one vulnerability that the war did not create but merely exposed: it depends entirely on an uninterrupted external flow of money and people.
A Resort for Locals: How a $6 Billion Project Survives on Vouchers
The resort was designed around an equal mix of foreign and local guests. After February 28, foreigners disappeared, and The Heart of Europe, like hundreds of hotels on the mainland, pivoted toward staycations for UAE residents. Guests are offered food and beverage vouchers equal to the price of the room. In practical terms, the overnight stay is almost given away for free as long as the guest shows up and spends money at the restaurant.
Kleindienst cites his own occupancy figures: 27 percent in March, 36 percent in April, and 56 percent in May. He expects to reach 80 percent in the coming weeks and promises to open five hotels by 2027, with construction continuing around the clock in some areas. Those figures require careful interpretation. Growth from an extremely low base during the height of a crisis is not the same thing as a sustainable business. If occupancy depends on discounts that make the room effectively free, revenue rises far more slowly than the occupancy rate.
For comparison, the city as a whole provides a useful benchmark. In 2025, Dubai received 19.59 million international visitors and had 154,264 hotel rooms across 827 hotels, with average occupancy above 80 percent. By March 2026, according to industry analytics, occupancy had collapsed to around 33.1 percent, 54.4 percent below the previous year. At the height of the panic, one major analytical division projected that second-quarter occupancy could fall as low as 10 percent and described the situation as an effective shutdown of a large part of the industry. That forecast proved too pessimistic, but its direction was correct: over the first seven months of the year, Dubai hotel occupancy remained 29 percent below the previous year, a worse performance than among its Gulf neighbors. DXB handled 18.6 million passengers in the first quarter, compared with 23.4 million a year earlier, while March traffic fell by 66 percent.
Against that backdrop, a resort on an island accessible only by water and dependent on its own electricity generation is more vulnerable than any hotel on the mainland. Diesel has become more expensive, and so has transporting construction materials by sea. At the same time, there are fewer tourists. It is a closed loop.
The project’s promises are shrinking as well. The Venetian resort within The Heart of Europe still exists only on paper. Its most heavily promoted concept, Floating Seahorse, was conceived as a partially submerged floating home anchored to the seabed. Changes in legislation forced the prototypes to be redesigned, and 72 units are now under construction. Kleindienst says he has always chosen perfection over speed and acknowledges that delays have understandably frustrated some partners. He rejects doubts about the project’s viability, arguing that it is a long-term tourism venture rather than a conventional property development scheme, and that many of its attractions required technologies and permits that simply did not exist when the project began.
That position would sound reasonable were it not for the lawsuits. According to sources and court documents reviewed by journalists, investors are challenging both delivery deadlines and promised guaranteed returns. Former employees are seeking unpaid wages. Kleindienst responds that the company is meeting its obligations and that any disputes can be resolved directly.
The phrase “guaranteed return” is the key. A guarantee issued by a developer rather than a bank is worth exactly as much as the developer’s own cash flow. As long as tourists keep coming, such arrangements work. When that flow dries up, the guarantee becomes debt with no money available to service it.
Other projects on the archipelago have fared even worse. Anantara World Islands, a Maldives-style resort developed by an entity connected to former DP World chairman Sultan Ahmed bin Sulayem, closed on April 10 without announcing a reopening date. Operator Minor Hotels attributed the decision to a combination of external factors. The wording was diplomatic; the substance was transparent. Other high-profile Dubai properties, including the Burj Al Arab and Armani Hotel, also simultaneously closed for renovation in the spring. None officially cited the war. When luxury hotels suddenly remember long-planned modernization projects at the same time, the market understands what that means.
Half the Deals Vanished, but Prices Are Holding. For Now
Mainland Dubai is experiencing the war differently from the islands, and the numbers vary sharply depending on where one looks.
First, consider the scale of the boom that was interrupted. Between 2020 and 2025, the total value of Dubai real estate transactions rose by 866 percent, while the price per square foot nearly doubled. In January 2026, the emirate recorded 17,457 transactions worth 72.5 billion dirhams, 22.7 percent more than a year earlier. January and February together produced 34,452 transactions totaling 133.3 billion dirhams. The market entered the war at full speed.
Then came the shock. According to estimates from one of the largest U.S. investment banks, real estate transaction volumes in the UAE fell 37 percent year over year during the first twelve days of March and 49 percent from the previous month. By March 9, the Dubai Financial Market developers index had lost roughly 21 percent, falling from about 16,700 to 13,353 points. Primary-market transactions, which accounted for 69 percent of all sales in 2025, dropped 21 percent month over month in March to 9,368. The most painful segment was the resale of properties still under construction: market participants reported that such apartments were changing hands at discounts of 10 to 15 percent from their original purchase prices. By the end of May, premium-segment sellers had cut asking prices by a combined 2.36 billion dirhams across 3,292 properties, according to one market-monitoring service.
In May, according to a local consulting firm, the number of residential transactions was roughly half the level recorded a year earlier. Sellers were unwilling to accept deep discounts, while buyers refused to pay prewar prices. Sales picked up in June and the pace of price declines slowed, but since the war began, housing prices have fallen by an estimated 10 percent.
This is where the picture becomes most interesting. Dubai Land Department data for the second quarter show more than 38,000 residential transactions, nearly one-third below the record level of the previous year, while their total value fell by almost 40 percent to 110.4 billion dirhams, or $30 billion. At the same time, the average price per square foot rose 6.5 percent. The two assessments appear contradictory only at first glance. The transaction mix shifted toward expensive completed housing, while cheaper speculative resales nearly disappeared. A price index captures discounts on specific properties; the average price per square foot reflects a changed composition of purchases. The fair conclusion is that the market has not collapsed. It has frozen and is repricing.
The optimists’ main argument concerns the composition of buyers. A senior research executive at a major international Middle East consulting firm notes that flipping, buying properties for rapid resale, is far less prevalent in this cycle than it was in 2008. Fewer speculators mean fewer forced sales. At the same time, he acknowledges that the war has seriously undermined confidence among Dubai’s predominantly expatriate population and expects further slowing during the traditionally quiet summer months.
There is also an uncomfortable backdrop that analysts were warning about even before the war. One leading ratings agency forecast in 2025 that prices could correct by as much as 15 percent between mid-2025 and the end of 2026. The reason was supply: roughly 250,000 housing units were expected to reach the market between 2023 and 2026, about 120,000 of them in 2026 alone. The war collided with a cycle that was already approaching an inflection point. A major U.S. bank cut its forecast for Dubai’s 2026 population growth, a key driver of housing demand, to 1 percent.
Two Thousand Developers and One Lifeboat
The most revealing detail in the entire story passed almost unnoticed. Shortly after the war began, the regulator, according to people familiar with the matter, started preparing for market consolidation and unofficially warned major groups that they might have to absorb smaller competitors running out of money.
According to the Dubai Land Department, more than 2,000 developers operate in the Dubai market. For a city of roughly four million people, that number is excessive. Most entered the market over the past five years, when property development seemed like a money-printing machine: sell apartments before construction begins, build with buyers’ money, and pocket the margin. The model works as long as the flow of new buyers continues. Once that flow dries up, the developer is left with construction obligations and payment schedules that buyers stop honoring.
Ziad El Chaar, chief executive of DarGlobal, the international arm of Saudi Arabia’s Dar Al Arkan and a company known for its partnership with the Trump Organization, puts it plainly. He says the newcomers most likely to suffer are those who entered development after seeing the boom and assuming it was an easy business. Markets heavily dependent on foreign buyers are hit hardest, while uncertainty pushes investors to postpone decisions.
Layoffs have already reached major names. Sobha and Azizi have each cut hundreds of jobs, according to sources. Some developers issued bonds before the war, and those securities are now under pressure. A senior real estate lawyer believes the combination of an oversupplied market and a wartime shock will accelerate consolidation. A construction specialist at a major local law firm expects demand to shift toward more conventional projects: the problems facing exotic developments can be solved, but the solutions will be expensive.
Who benefits from consolidation? First and foremost, the largest developers affiliated with the state or ruling families. They will be able to acquire land parcels, unfinished developments, and competitors’ customer bases at distressed prices. The state benefits as well by gaining a market that is easier to manage. Buyers from smaller developers lose: in the best case, their projects will eventually be delivered after delays; in the worst, they will have to litigate. After the previous crisis, Dubai had to establish special mechanisms to liquidate canceled projects, and many buyers waited years for resolutions.
I believe this consolidation is inevitable and, paradoxically, beneficial for the emirate. A market in which two thousand companies compete over who can promise the highest guaranteed return is more dangerous than one in which twenty major players are accountable with their own capital. The state understands this. The question is what price private investors will pay.
Sajwani Is No Longer Sounding the Alarm: Why the Giants Are Launching Projects Under Missile Fire
At the other end of the market, conspicuous confidence prevails, and that too is political.
In June, Emaar, the developer behind the 828-meter Burj Khalifa, unveiled plans for a new $55 billion urban district designed for 150,000 residents. A month earlier, Canada’s Brookfield announced a new joint venture to invest in Dubai real estate. DarGlobal is building an 80-story Trump-branded tower with a rooftop pool that the company says will be the world’s highest outdoor pool. Completion is scheduled in five years, and according to El Chaar, 80 to 90 percent of the units have already been sold. The company, he adds, continues to look for new opportunities.
The most interesting voice belongs to Hussain Sajwani, founder of Damac Properties and another business partner of Trump. In 2019, he was the one publicly warning of an approaching housing-market disaster caused by oversupply. His tone is different now. The company has ample cash, payments are arriving on schedule, launches are continuing, and market confidence remains strong, he says. Regarding Amali, where his children are developing luxury villas, he says not a single buyer has withdrawn and several more properties have been sold over the past two months.
Even on the long-troubled archipelago, the picture is not uniformly bleak. Zaya’s Zuhha Islands project sold all 30 villas before the war, with individual properties selling for as much as $24 million.
Why are the giants accelerating? Because panic creates opportunity for those with cash. Launching a $55 billion project in the middle of a war sends a message to markets and creditors: major Dubai is not going anywhere. In addition, ultra-wealthy buyers respond to war differently from the middle class. For someone controlling hundreds of millions of dollars, the main question is not whether a drone can reach Palm Jumeirah. It is where that money can be better protected from taxation and political turmoil at home. By that standard, Dubai still has few competitors.
An important caveat is necessary. Confident statements by developers are part of their business. Sajwani, when he speaks of market confidence, is selling confidence. El Chaar, when he reports that 80 to 90 percent of apartments have been sold, is reporting to investors. Those statements alone are not proof. The proof will come later, when installment payments fall due and it becomes clear how many buyers actually follow through.
Who Pays for the Showcase
Behind the market figures lies a political economy that is rarely discussed openly.
The first casualty was the very concept of Emirati neutrality. For years, Abu Dhabi and Dubai cultivated relations with Tehran while simultaneously maintaining their alliance with Washington: Iranian capital, Iranian trade, and reexports through Jebel Ali coexisted with U.S. military bases. The war showed that it is possible to sit on two chairs only until a bomb explodes under one of them. For Iran, the emirates became a convenient target: striking them meant hitting an economic nerve center of the region tied to the United States while assuming relatively limited military risk.
Banks are the second group footing the bill. According to estimates from a ratings agency, corporate real estate accounted for 13 percent of the entire UAE banking system’s loan portfolio at the end of 2025, and that share changed little in the first quarter of 2026. For now, this does not threaten the system because banks maintain substantial capital buffers. But if consolidation proceeds through bankruptcies rather than acquisitions, some of the damage will end up on bank balance sheets.
The most vulnerable people in this chain are migrant workers. They were the ones killed by falling debris in the first days of the war, and they are the first to be sent on unpaid leave when hotels empty out. Most arrived after taking on debt to cover visas and travel costs. For them, losing a job is not a temporary pause. It is financial ruin.
Paradoxically, neighboring countries are among the beneficiaries. According to industry data, Saudi Arabia’s hotel occupancy fell only 2.8 percent over seven months, compared with Dubai’s 29 percent decline. Riyadh, which has spent years trying to lure regional headquarters and tourists away from Dubai, received an argument it could scarcely have imagined. Competing hubs outside the Gulf also benefit as some transit traffic and capital temporarily migrate elsewhere.
There is a lesson here for Baku as well, and I would frame it without any schadenfreude. Azerbaijan has spent years building its economic strategy around transit and energy, and the attractiveness of the Caspian route rises every time Hormuz comes under threat. But Dubai’s main lesson is not about routes. It is about trust. Security marketed for twenty years as a commodity can lose its value over a single weekend. Stability cannot be bought or reclaimed from the sea. It can only be maintained, day after day.
The 2027 Scenario: Consolidation, Not Collapse
Every Dubai panic of the past twenty years has ended in roughly the same way: crises consume the weak, while the strong emerge even stronger. In 2009, the rescue came from Abu Dhabi. The pandemic of 2020 was followed by a boom almost no one had predicted. The comparison with Spain in 2008 is instructive. There, the construction bubble left behind ghost developments such as the residential complex in Seseña outside Madrid, where only part of more than thirteen thousand planned apartments were built and units remained unsold for years. The difference is that Spain did not have a sovereign fund ready to absorb developers’ debts. Dubai has Abu Dhabi, and that insurance policy, unlike the military one, has not yet been withdrawn.
My baseline scenario is this. If the ceasefire holds and Hormuz does not close again, the housing market will not return to prewar transaction volumes before the second half of 2027. Prices will most likely correct by several additional percentage points during that period, but without a collapse. The number of active developers will decline noticeably by the end of 2027, and acquisition deals will become the dominant industry story as early as the first quarter of that year. In my assessment, tourist arrivals will not return to 2025 levels before the winter season of 2027–2028.
The pessimistic scenario is tied to a resumption of strikes. A second round of war would hit not merely sentiment but payment discipline. Buyers of off-plan housing would begin stopping installment payments on a large scale, turning the problems of small developers into problems for the banks. In that case, consolidation would proceed not through voluntary acquisitions but through forced rescues, as it did in 2009.
For projects like The Heart of Europe, the choice is harsher. Their survival depends less on housing prices than on the return of international visitors and the cost of fuel. If Kleindienst actually opens five hotels by 2027 and maintains occupancy without effectively giving rooms away through vouchers, the project will have a chance. Under a different scenario, with mounting lawsuits and no tourists, the archipelago risks becoming for the second time what it became after 2008: a monument to ambitions that outran economics.
One question remains unanswered. No one in Dubai today appears prepared to publicly calculate how many guaranteed-return promises issued by small developers over the past five years will turn out to be worthless pieces of paper.
Rain on Schedule
The Dubai Land Department insists that it supports the market through proactive regulation and continuous monitoring and that the sector’s outlook remains highly promising. For the largest players in Dubai, that may well be true. Emaar is launching a city within a city, while Sajwani’s children are selling villas.
Everyone else faces a more difficult reality. The war did not create Dubai’s problems. It simply shortened the time it took for them to become visible. Two thousand developers, a nearly ninefold increase in transaction values over five years, guaranteed returns promised by companies without sufficient financial reserves, a tourism industry dependent on confidence in security — all of this had been accumulating for years. Iranian missiles merely accelerated the reckoning.
On the Côte d’Azur in the middle of the Gulf, artificial rain still falls on schedule. Guests stand beneath yellow umbrellas and take photographs. Somewhere nearby, diesel generators hum, and every drop of that rain is paid for with fuel that passed through the most dangerous strait in the world. As long as there is diesel, the rain will keep falling on schedule.