'Germany' for Sale: Developer Moves Forward with Ambitious 'World' Development in Dubai

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Kleindienst might be right. Still, since the outbreak of the real estate crisis, whole cities full of newly built vacation homes in Spain have stood empty. And, in Dubai, real estate brokers are so desperate to sell luxury villas that they'll let people live like kings at a drastically reduced price.

Kleindeinst has a ready response to these points. In 2003, he came to Dubai himself as a broker. In 2006, he sold some villas on the island Palm Jumeirah for €500,000 a piece. Today, he's selling them for no less than three times that amount. Granted, on the eve of the crisis, in the crazy summer of 2008, they would have been selling at a brisk pace for €3 million, but real estate prices have plunged by half since then.

Compared to 2006 prices, though, things are still rather reasonable. That is, of course, if Dubai doesn't completely crash and see expatriates fleeing it in droves. It's the kind of scene that has recently even been imagined in a dismal first-person shooter video game -- Spec Ops: The Line -- released in Los Angeles last week, which portrays Dubai as a post-apocalyptic boomtoom with the ruins of its high-rises beset by cataclysmic sandstrorms.

Still, Kleindienst rhapsodizes over golf in the winter, rugby tournaments in Dubai and Formula One races in Abu Dhabi as a seaplane, a Cessna Caravan, lands on the strait dividing the islands representing England and France and taxis with spinning propeller over to the Germany island. "May we now invite you to our little trip around the world?" asks Kleindienst's assistant. Per, the Norwegian pilot dressed in shorts and a T-shirt, lowers the stairway door leading into the plane, and the first group of travelers pulls up their pant legs and wades over to the Cessna.

A Flag for Each Island

Kleindeinst put down an almost €50 million deposit for the islands representing Germany, Austria, Switzerland, the Netherlands, Sweden and St. Petersburg. To help passengers on the plane recognize which island is which, each of them has been marked with a different flag. It's a surreal sight from above: six white strips of sand on an atlas in the sea, each with a huge flag lying in their centers.

Kleindienst says that the Germany island is the first one that has been paid off. Whoever buys a plot also purchases a title in Dubai's real estate register.

Kliendienst also says that he has raked in a good €200 million since 2003 and that he was "doubly lucky" because he also sold his portfolio immediately before the crisis struck. These funds will now allow him to pay for his plans for "The World" with his own money until 2012. After that, he says he'll have to get outside financing. But, by then, it'll probably easier than it is today.

However, one European lawyer in the Gulf strongly encourages all parties interested in investing their money in Dubai to take a very careful look at what they are doing. Registering the property in the land register is key, as is the main developer's "release" of the plot. In the case of "The World," that would be Nakheel, the company that made the islands. Nakheel's sleek fleet of company boats still plough though the sea off Dubai just like they did in the best of times, but the company's future is still uncertain. In the very near future, Nakheel will have to pay back a $4.1 billion loan. Likewise, its parent company, Dubai World, is standing under a $22 billion mountain of debt, and it currently has no idea how it is supposed to even start chipping away at that figure.

Confidence & Depression

There are also other questions that have not been conclusively answered which potential investors in Dubai should ask. What kind of residency status do foreigners get if they own a house or piece of property in Dubai? What are the conditions associated with bequething a house or property in Dubai to someone else? And when a developer and an investor get in a fight, on what legal basis is it resolved?

"I don't have any worries about the islands on 'The World'," says Alexius Goeschl, 59, a certified public accountant who advises Kleindienst. "For yacht owners, things are ideal out here: You're far away from big-city traffic but only 15 minutes from the beach. I'd love to be able to buy one of these villas for myself."

Depending on where you are in Dubai these days, things look either bright or completely dire. In February, John O'Dolan, an auctioneer and entrepreneur who also owned the "Ireland" island, took his own life. He had over-speculated. And it's now an open question what will happen with "Ireland," which lies just a few hundred meters away from the "Germany" island.

On the other hand, there's also some good news, like the one that calmed shaky nerves on Monday: The government of the United Arab Emirates announced that it was raising the salaries of civil servants by 70 percent. So, there is some money there -- perhaps not in Dubai, but at least in Abu Dhabi, the oil-rich emirate next door.

Where will things for Dubai go from here? No decision has yet been made about the exact direction. But, when it comes to the pace, the coast guard has a good suggestion: A red warning sign posted at the end of a jetty at the entrance to "The World" warns boaters to "Go Slow."

It may be better for the time being to only plow ahead at half-speed -- and cause no wake.

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• Part 1: Developer Moves Forward with Ambitious 'World' Development in Dubai
• Part 2: A Buyer's Market