With hindsight, the £15m party to open the outlandish luxury hotel on a palm-shaped artificial island had more than a hint of fin de siècle. The fireworks at the November extravaganza cost £3m, and Kylie provided the entertainment for guests including Robert de Niro.

Dubai is a playground for the rich, its streets lined with priapic towers. Some 20% of the world's construction cranes are said to be in the small city-state. But even here the party has come to an end.

The airport has become swamped with abandoned cars bought on credit as expats flee the country and leave their debts behind. Professionals from Europe, Australia and the US have been going home as work dries up.

"There have been some horror stories," says one expat. "One banker moved out here with his family after selling up in London only to be sacked after four weeks. He was traumatised."

Dubai has relatively little oil and has sought to reshape itself as a centre for financial services, tourism and property largely on the back of borrowing - its corporate and sovereign debt has reached $80bn. But the property market has crashed, prices falling in some areas by as much as 50%. The investment banks have begun to cut staff. Building has slowed or ground to a halt.

Nakheel, the developer of the palm tree-shaped islands on which celebrities including David Beckham have bought homes, last month cut 500 jobs.

There is speculation that Abu Dhabi, the richest of the United Arab Emirates, may be forced to bail out Dubai. The emirate's ruler, Sheikh Mohammed bin Rashid al-Maktoum, has put together a war council of top executives to steer it through the downturn. Its banking system has been bailed out and its two main mortgage providers folded into Abu Dhabi banks.