Nearly two years after it was forced to go cap in hand to neighbour Abu Dhabi for a bailout, a chastened Dubai has ringfenced vulnerable assets, forced banks to bolster reserves and deferred debt maturities.
A more modest approach to business -- in contrast with the excesses of its earlier model -- coupled with strengths in logistics and trade, and a growing focus on its own region, mean that Dubai's dreams of being a top financial centre are still just about alive.
Luck certainly seems to be in its favour: the Gulf emirate has proven an oasis of calm amid the chaos of the Arab Spring, which saw rebellion in countries as far apart as Tunisia and Syria and, crucially, rival Bahrain.
"In Dubai 2.0 we're likely to see what we didn't see earlier -- more Arab traffic and more Arab business," said Florence Eid, CEO at research firm Arabia Monitor.
"There's going to be more regionalisation of the region. They used to send petrodollars to the U.S. and Europe and some people used to go to Asia. Now we're seeing Arabs investing in other Arab countries -- Dubai epitomises all of that, even more than ever now, as a locus for this activity."
Dubai's boom -- and bust -- were closely linked to its real estate market. The market is still plagued by oversupply, but there's a sense that when a recovery eventually happens, it will be based on firmer ground.
"The speculation has disappeared -- it's a purely organic story and demand is still weak compared to when there was an influx of expats," said BoA Merrill Lynch economist Jean-Michel Saliba, who estimates that 20 percent of residential property, and 40 percent of commercial property, remains vacant.
He expects the property market to return to normal by 2015 because "the history of real estate bubbles suggests a five- to seven-year cycle".
NO ARAB SPRING, BUT MORE ARABS
Although only 12 percent of citizens in the United Arab Emirates are eligible to vote, Dubai has seen none of the violence that has roiled the region, thanks to high per capita incomes and subsidies. Its hotel, retail and residential real estate sectors are enjoying a boost from the emirate's status as a sanctuary from unrest.
"Interest from those displaced by the Arab Spring or looking for safe-haven residential properties in Dubai is reported to be particularly strong for upmarket villas in iconic projects such as Palm Jumeirah," said consultancy Jones Lang LaSalle (JLL).
Anecdotal evidence suggests that rich and even middle class Arabs are buying Dubai property to hedge their risks in other countries.
"We're seeing some clients from Yemen, Syria, Egypt and Libya," said a Dubai-based real estate agent. "They have no liquidity in their home markets and are moving money from one place to another."
A JLL report found sale prices for the high-end villa segment were trending upward, and rentals in this segment were starting to increase in some areas, even though apartment rents were continuing to fall.
Dubai's malls are teeming with visitors from the region. In particular, there is a weekend spike in Saudi visitors, who earlier probably used to make the much shorter drive to Bahrain.
A Western expatriate was forced to vacate a five-bedroom penthouse on the Palm Jumeirah early this year because his Saudi landlord wanted to relocate the family to Dubai.
A salesman selling rare pashmina shawls in Souk al Bahar, which adjoins Burj Khalifa -- the world's tallest building -- said it was mainly Saudi and Kuwaiti customers who were buying the most expensive scarves, which can cost more than 6,000 dirhams ($1,635).
Western banks operating in Dubai are alive to the opportunities that Arab millionaires present, shifting their focus back to wealth management at the cost of research and investment banking.
UBS and Deutsche Bank have recently hired new regional heads for wealth management. Deutsche is expecting to add more private bankers before year-end, a person familiar with its plans said.
IN ARID CLIMES, GREEN SHOOTS?
The new Dubai is a quieter version of the over-the-top desert metropolis that attracted Western bankers in droves in the last decade, only to fall apart spectacularly when real estate prices dived and top firms were unable to meet debt commitments.
Some of the signs are promising, even though economic problems in Europe and the United States could yet cast long shadows.
Passenger traffic at Dubai International Airport rose 9.7 percent to a monthly record of 4.7 million people in July, while year-to-date traffic jumped 9 percent.
Hotel occupancy stood at 86 percent in the first quarter of 2011 compared with 75 percent in the third quarter of 2008, when the global financial crisis deepened. The loan-to-deposit ratio at banks fell to 94 percent in July 2011 from 110 percent in January 2009, according to Bank of America-Merrill Lynch.
Analysts estimate unrest-hit Bahrain suffered $20 billion in capital outflows in the first quarter of this year, and some of that money headed to Dubai.
Dubai's debt insurance costs have narrowed since Dubai World reached a deal with creditors last year, and they hit pre-crisis levels in June this year. The government launched a $500 million bond this year, its second since the debt crisis.
Flagship airline Emirates' $1 billion bond issue in June was oversubscribed six times, and has been resilient even in markets spooked by the euro zone sovereign debt crisis and the spectre of a U.S. sovereign credit rating downgrade.
The carrier's massive expansion plans and wide reach are the envy of others in what is a struggling sector globally.
"A lot has changed, including the way Dubai Inc is structured, the bankruptcy law, greater provisioning at the banks and harmonisation of bad debt rules. And there's a realisation that you need a cash rationale for expanding real estate -- that if you build, sometimes they won't come," said Daniel Broby, Chief Investment Officer at Silk Invest.
Developer Nakheel, builder of artificial islands in the shape of palm trees and the world map, has been brought under direct government control, and further changes to top management at other companies are expected.
"The good cashflow earners have been ringfenced sufficiently to drive Dubai 2.0," said Broby.
The emirate's sovereign wealth fund, Investment Corporation of Dubai, repaid in full and on time a $4 billion loan due in August after having secured commitments to part-refinance it.
"If more restructuring is to come, there is a precedent. There's comfort that there's a kind of rulebook we can use," said Georges Elhedery, HSBC's head of global markets for the Middle East and North Africa.
Big redemptions of government-related debt coming up will be a challenge. The International Monetary Fund estimates nearly $30 billion in repayments will be due before the end of 2012. Completed and ongoing restructuring negotiations are merely pushing back full repayments by between four and eight years.
Good economic growth would help. Dubai's economy expanded by 2.8 percent in real terms last year, faster than previously expected, as growth in trade and the retail sector helped it recover from its contraction in 2009, according to preliminary data. Some analysts expect growth of around 4 percent next year.
The economy in Abu Dhabi, now seen by investors as a backstop for Dubai, has been underpinned by a strong oil price.
MORE SOBER GROWTH
While a weak global economy has prompted analysts to push back their dates for a real estate recovery -- key to Dubai's future -- there are factors that work in favour of the emirate.
"Dubai 2.0 is a humbler place, but a no less entrepreneurial or dynamic place," said Arabia Monitor's Eid.
"The best bet going forward is the real economy -- tourism, conventions, its safe haven appeal and entrepot trade. Growth now is of a more robust nature compared to the fluffier, financial sector growth of Dubai 1.0."
For an erstwhile playground of the rich and famous, life doesn't get much more humdrum than transporting cargo. But the realisation seems to be sinking in that it's back to basics.
As part of plans to become a global logistics and transport hub, the emirate is building Al Maktoum international airport, set to be the world's largest with a capacity of up to 160 million passengers a year.
The airport is part of a 140-square-kilometre transport hub or "aerotropolis" known as Dubai World Central. Cargo operations at the airport have already started and will complement the Jebel Ali Sea Port, the world's sixth-largest container terminal.
"Logistics will always remain one of Dubai's key sectors and its key strength," said Ayesha Sabawala at the Economist Intelligence Unit in London. "With the gradual shift in trade flows from West to East, I don't think Dubai can afford not to continue to improve on its logistics capabilities."
The emirate, at the crossroads of Asia and Africa, is also positioning itself as a commodity trading hub.
The Dubai Diamond Exchange traded a record number of diamonds last year, with value doubling to over $35 billion, and gold traded through Dubai reached a record $41.3 billion.
The remnants of abandoned grandiose projects serve as warnings for the future. Nakheel Harbour and Tower, which would have had as its centrepiece the world's tallest building, eclipsing Burj Khalifa down the road, was spectacularly launched in October 2008 amid much fanfare and media glare.
Three years on, all that remains of the 200-storey project, whose tenants would have experienced five microclimatic conditions as they went up the building, is a metro station announcing its location.
"There still is some appetite to invest in ready property but sourcing money for developing something like another Burj Khalifa is highly unlikely," said Deepak Jain, head of strategic consulting for the region JLL.
For believers in the long-term prospects of the region, the shakeup and the weakness in real estate present opportunities.
A market source said Citigroup, which has about 40 bankers focused on the MENA region based in Dubai International Financial Centre (DIFC), had recently leased an additional 11,000 square feet at those premises.
French bank Credit Agricole plans to shift its regional base out of Bahrain into the DIFC. Sources have said Dubai may also house some back-office staff being moved out of Bahrain by another French lender, BNP Paribas.
Dubai has not lost sight of its ambition of being a global financial centre, leveraging its strong infrastructure and the advantage of being located three hours ahead of London and four hours behind Hong Kong in the global day.
"The question is: how much Dubai do you need? Does the world need more financial centres for the foreseeable future? The experience of Frankfurt shows that we probably don't, for the time being," said Julian Mayo, portfolio manager at Charlemagne Capital.
Dubai's financial regulation came in for plenty of flak during the crisis, and the Dubai Financial Services Authority (DFSA), which regulates the DIFC, and the central bank, have their work cut out.
This year the DFSA has censured the local unit of Danish lender Saxo Bank for its failure to comply with rules, and fined E*Trade Financial Corp for breaching anti-money laundering controls.
"We now spend more time on firms that are systemically relevant and with a higher risk profile -- so we don't try to cover all like we did in the beginning," Paul Koster, the Dutch chief executive of the DFSA, told Reuters.
Dubai's political bosses continue to make positive noises.
"It is growing" as a financial hub, Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai's Supreme Fiscal Committee, told Reuters. "I'm very positive about all the core businesses of Dubai."
But in the final analysis, how seriously Dubai is taken as a financial centre could depend on reforms in Saudi Arabia and further afield, progress in India.
"Part of the future of Dubai is tied up with what happens in India. India is a sleeping giant from a financial perspective with massive, longstanding stock markets. The question is: do they want to internationalise? Their financial system is still very inward-looking," said Mayo.
(Additional reporting by Martina Fuchs and Praveen Menon; Editing by Andrew Torchia)