If Monaco is, in Jack Nicholson's phrase, Alcatraz for the rich, what shall we make of Dubai? Dubai is a city built between the desert and the pale blue sea, that uses more water per capita than anywhere else in the world, and derives 97% of it from desalination, which means that it is the most expensive water in the world. Much of that water is being used to create a garden in the desert. All across the sprawling conurbation, labourers can be seen planting out millions, possibly billions, of bedding plants, into sand banks perpetually moistened by drip irrigation. Dubai has been built on the premise that nothing succeeds like excess.

After years of popping in and out of Dubai airport on my way to and from Australia, this time I deliberately managed my travel itinerary so that I had a long layover, four hours of which I spent on the open top of a double-decker bus that wandered from Deira City Centre through the Wafi Mall, round the World Trade Centre, down to the Jumeira Beach Road and past The World, before doubling back past the Mall of the Emirates and downtown Dubai.

Only 6% of Dubai's revenue comes from oil; the city makes most of its money out of inventing, creating, building and trading real estate. Hence Sheikh Mohammed bin Rashid Al Maktoum's hubristic notion of building an archipelago out of sand dredged from the Persian Gulf, 300 islets arranged in a resemblance of the world map, and calling it The World. Thousands of workers trucked in from poor countries constructed the patches of exposed sand, and the infrastructure that furnishes each with water and power. The islets have since sold for anything between US$15m and $250m apiece. It seems doubtful now that the countries and corporations that have bought into the scheme will have the resources to develop their patches of sand into themed resorts, which might be as well. We can only hope that the Irish company Larionovo, owners of the Ireland islet, never get to build their planned replica of the Giants' Causeway.

What I particularly wanted to see was the tallest building in the world, Burj Dubai, which topped out at 2,684ft on 17 January. As the bus trundled past, I hung out from under the sun canopy, peering up at this needle stuck in the buttock of the Almighty, and I noticed with a thrill of something like terror that there were cranes still working on the top of it, half a mile up in the air, supposing there was any air up there. Burj Dubai was originally meant to be entirely residential; when I saw it, it was entirely empty. The Armani residences are apparently selling at US$3,500 per sq ft and office space for rather more, but I had an eerie feeling no one would ever live there. Soaring up from that tongue of sand, with the Empty Quarter stretching away to the south, Burj Dubai seemed outrageously megalomaniacal, and defiantly worldly, a new Tower of Babel. The developer, Emaar, has lost 75% of its value on the Dubai stock exchange.

While Burj Dubai is a pretty conservative building, Burj al Arab, the huge sail-like luxury hotel built on the lines of an Arab dhow, is entirely innovative. The structure hangs from a steel exoskeleton. From the outside it is unbelievably elegant, light and clean (the interior is anything but). In afterthought, the reference to the tiny dhow seems somehow mocking. The only dhows on Dubai Creek these days take tourists on one-hour pleasure cruises. Though in Dubai you are surrounded by the poor, who labour on every building site, clean the streets and the houses, and wait on the children, they are as invisible as the plumbing. Here, there is no subsistence; here there is only shopping.

Crassest of all the real estate initiatives are the three Palms, off-shore developments of 16 branches emerging from a central trunk, enclosed within a circular breakwater, each intended to house hotels, villas, apartments, marinas, theme parks, sports facilities, and malls. At Palm Jumeira, still largely undeveloped, the water between the branches is stagnating and algae is forming along the man-made beachfront. How this will affect the dolphins that are shipped from the South Pacific to amuse the guests at the Hotel Atlantis, who pay $75 to swim with them, is anybody's guess.

In December, Nakheel, developer of the Palms, cut 15% of its workforce. Dubai's stock market has lost 70% of its value. Half of the 100 Dubai estate agents interviewed for the Christian Science Monitor in December said they had not sold a property in the previous month. Some of the unfinished buildings I saw will never be finished. Many should never have been started. For all its extravagant novelties and its masses of petunias, Dubai is a city with neither charm nor character.

• This article was amended on Tuesday 24 February 2009. In the article above we said that "the only dhows on Dubai Creek these days take tourists on one-hour pleasure cruises". In fact they are regularly used to transport cargo as well. We also said that the man-made group of islands arranged to resemble a world map was called Dubai World. Its actual name is The World and this has been corrected.