DUBAI, June 6 (Reuters) - With ambitious plans to build the world's first undersea hotel and establish itself as a cultural hub with an opera house and museum complex, Dubai is dreaming again.
As the Gulf Arab state has made progress on restructuring its debt and an improving economy is boosting its fiscal position, th e government in recent m o nths has revived a host of projects put on hold after the property market collapse and subsequent debt crisis in 2009.
Plans to build a waterway that would enable residents in an upscale residential area of the city to sail to work in the business district by yacht are also back on the agenda. Other projects mooted by the government include the world's largest animal safari park and the biggest amusement park.
Whether all these projects actually come to fruition remains to be seen, however.
The city that boasts man-made islands shaped like palms and an indoor ski slope is never short of ideas, but conditions for building are still far tougher than during the boom years of 2002-08 as a near four-year property glut is hampering growth.
The emirate is still trying to rebuild credibility with investors who fled after state-owned conglomerate Dubai World shook markets in 2009 with a $25 billion debt restructuring plan.
"These Dubai projects that are a bit more adventurous or over the top will probably never get the funding. It's all about funding these days and investors will think before putting their money behind such plans," said a Dubai-based economist, who did not wish to be named.
State-backed entities led by Dubai World have made headway on securing debt deals with creditors and healthy demand in April for the state's first sovereign bond issue in nearly a year suggested investor confidence in Dubai is on an upward trend. But going off on a spending spree again is unlikely to reassure.
"It is true that Dubai should be using its resources to repay its huge debt," said a Dubai-based property analyst, who did not wish to be named.
"However, another way to look at it is that Dubai has to continue building its business ... and its best chance of growth is to build its tourism business."
The underwater hotel will be built by Drydocks World, a shipbuilding unit of Dubai World and which is itself restructuring $2.2 billion in debt, which it hopes will be completed by July.
The project is similar to an undersea project to build a 250-300-suite hotel and resort announced in 2006, known as Hydropolis, which was shelved after the debt crisis.
The latest version will be built in partnership with a Swiss firm, Big Invest Consult AG, which will arrange financing for the project, the companies said in April. The project is at the design stage and will commence only after financing is secured.
"Even if this underwater hotel project never goes ahead (which would not be unusual) in Dubai ... it is still good publicity for brand Dubai," said Filippo Sona, head of hotels and resorts for the Middle East and North Africa at property consultants Colliers International.
"It looks like Dubai is back in business and pumping away."
Extravagant projects were the hallmark of Dubai during the 2002-2008 boom years when the emirate attracted global attention with man-made islands shaped in a map of the world and constructed the world's tallest tower, the Burj Khalifa tower, as well as what it bills as the largest shopping mall in the world, with an Olympic-size ice skating rink.
After the debt crisis hit, spending on infrastructure projects fell sharply. Last year it dropped 20 percent to 7.1 billion UAE dirhams ($1.9 billion), half the level seen in 2008.
But conditions are improving. Dubai house prices may finally stop falling this year after losing nearly two-thirds of their value since 2008, a Reuters poll shows, although oversupply will continue to dog the market for some time.
The emirate's economy grew 3.4 percent last year on strong trade flows and as its safe-haven status during the Arab Spring revolts elsewhere in the Middle East boosted tourism and capital inflows, helping cut the government's budget deficit to 3.7 billion dirhams ($1 billion).
Passenger numbers at Dubai's main airport surged 14 percent in January-April this year from a year earlier and the government targets 4.5 percent economic growth for 2012.
However, revenues are still shaky and the government cannot afford to spend on projects that don't generate a decent return.
"I would imagine that Dubai has learnt its lessons and is now putting more attention on sustainability," said Fabio Scacciavillani, chief economist at Oman Investment Fund in Muscat.
"Projects like the opera house and other public projects are only beneficial if they generate revenue. If they are just extravagant ventures with an uncertain stream of revenue, then the question is how would they pay for it."
The opera house and museum project is a revival of a pre-crisis scheme to build a dune-shaped opera house and cultural centre, designed by British architect Zaha Hadid, on an island in Dubai Creek. That was shelved as its struggling developer, Sama Dubai, slashed projects in 2009.
The government has not said how much the new complex, to be built in the shadow of the Burj Khalifa tower and include an opera house, modern art museum, two hotels and residential housing, w i ll cost, nor how it will be funded or who will design it. The city's designs on becoming a cultural hub could put it in competition with Abu Dhabi, the United Arab Emirates' capital city, which rode to Dubai's rescue at the height of its debt crisis, throwing it a $10 billion lifeline.
The capital is building branches of the Guggenheim and Louvre museums as part of a $27 billion cultural project aimed at making Abu Dhabi a culture capital for the region.
Unlike Dubai, Abu Dhabi has oil wealth to spend on such projects. But progress on this project has not been smooth. Completion is taking far longer than planned and more than 130 artists last year pledged to boycott the complex over what they said was exploitation of foreign workers, according to Human Rights Watch. ($1 = 3.6729 UAE dirhams) (Editing by Susan Fenton)