DUBAI: Russian-speaking clerks sit idle in the dozens of shops that line Dubai’s Deira fur market, waiting for someone to come in and look at the racks stuffed with mink, sable and ermine coats. This was supposed to be the busiest time of the year.

“We knew the storm was coming, but we didn’t realise how strong it would be,” said George, a shopkeeper who says sales have dropped by about 70 per cent this year. The store hasn’t sold any coats at the top price of $100,000 after several were bought in 2013, he said, asking that his last name not be used to avoid helping his competitors.

The Russians aren’t coming and that means pain for the retail, tourism and real estate markets that underpin Dubai’s foreigner-driven economy.

Russia’s economic turmoil means Dubai is losing one of its biggest sources of customers at a time when events such as the falling oil price and mortgage-lending restrictions are already putting pressure on those markets.

“With the rouble’s decline, a property that would have cost $1 million now costs $2m,” said Anna Kochetulim, a Dubai-based property broker. Her firm, which mainly caters to Russians, saw business shrink by 90pc over the past several months.

The rouble dropped 38pc against the dollar since the beginning of June as oil prices reached a five-year low. That made foreign goods and travel abroad twice as expensive for those who are paid in roubles. The United Arab Emirates’ dirham is pegged to the dollar.

Dubai’s economy grew at an estimated 4pc this year, the Department of Economic Development said Dec 16. The International Monetary Fund projected growth of 5pc in 2014 compared with 4.6pc last year.

Russian visitors to Dubai typically surge toward the end of the year and into early January, when many take their longest holidays.

The country’s economic turmoil deepened in December as oil slumped and the rouble’s drop accelerated.

Russian hotel guests in Dubai have dropped by 16pc through the end of October compared with the same period a year ago, according to Issam Abdul Rahim Kazim, chief executive officer of Dubai Corporation for Tourism and Commerce Marketing.

The decline comes as an increase in rooms is hurting occupancy and profitability at Dubai hotels. Occupancy in November fell 2.5 percentage points to 85.5pc, while revenue per available room dropped by 9.2pc, industry researcher STR Global said on Dec 10.

Around 27,000 hotel rooms are set to be completed through 2017, about 5.5pc of current supply, according to a report by broker CBRE Group Inc. More than 3,500 rooms were added in 2014.

Dubai’s occupancy rate is among the highest in the world, averaging around 80pc in the past four years, Philip Wooller, Middle East and Africa director at STR Global, said in September.

“The middle and upper-middle segments collapsed completely” for travel companies, said Dennis Dolmatov, business development director at Destinations of the World.

“Companies working with charter flights and with large tour operators have had declines of 30pc or more. They are losing margins as well because they’re having to fight for each tourist.”

Hyatt International, which has six hotels in the UAE including four in Dubai, saw the number of its Russian guests drop by 15pc since August, said Tareq Daoud, regional vice president of Middle East sales.

The decrease in Russian tourists is coming as arrivals increase from China, Oman, India and Britain. The number of Chinese visitors climbed 25pc, while In­d­ian and British tourists grew 10pc and 9pc respectively this year through Octo­b­er, according to the city’s tourism authority.

Russian property buyers have almost disappeared, stopped by the currency’s decline and international sanctions that make moving money abroad more difficult.

Dubai developments such as Jumeirah Beach Residence and the Palm Jumeirah artificial island have long been popular with wealthy Russians looking for vacation homes, said Zhanna Yerkozhanova, a managing partner at BEBO Real Estate brokerage.

Kochetulim recalled a Russian who was unable to transfer the equivalent of 6m dirhams ($1.6m) to pay for an apartment on the Palm Jumeirah. Banks refused to allow the buyer to open an account in Dubai, forcing him to cancel the offer. BEBO’s Yerkozhanova said she has had a similar experience.

Russians were the sixth-biggest group of foreign homebuyers in Dubai in the year through Nov 15 after being fifth last year. Transactions totalled 2bn dirhams in the period, compared with 3bn dirhams for all of 2013.

“When a significant chunk of the market is withdrawn, the impact will be felt and a lot of developers will have to rethink their projects,” said Craig Plumb, head of Middle East research at broker Jones Lang LaSalle Inc.

Even though demand from places such as China and West Africa has been growing, it won’t make up for the loss of Russian buyers, he said.

Retailers in Dubai are feeling the decline. Spending by Russian tourists dropped by about 10pc this year, according to Nikola Kosutic, research manager at Euromonitor. Visitors from the country spent 3.3bn dirhams last year.

“They are big spenders. They buy luxury goods, which are significantly cheaper in the UAE than in Moscow or St. Petersburg,” Kosutic said. Some retailers “won’t feel a thing, while others will have a devastating decline in sales.”

Tourists account for as much as 35pc of all spending in Dubai and the decline in Russians has had an impact, said David Macadam, CEO at the International Council of Shopping Centres.

Dubai has also witnessed a decline in spending by visitors from Saudi Arabia and Kuwait, he said.

The currency crisis hasn’t deterred the high-end travellers, who are still eager to book Dubai’s luxury hotels with an average cost of $30,000 per booking, Dolmatov said.

“The top five hotels in Jumeirah, like Burj Al Arab, are fully booked,” Dolmatov said. “We have had to put some clients on waiting lists.”

Dubai’s tourism authority isn’t put off by the Russian slowdown. The city continues to invest in marketing in the country, which “remains a key source market for the long term,” tourism corporation CEO Kazim said.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, December 26th, 2014