Penguin Marine, a company hired by Dubai government-owned Nakheel to handle all transport to and from the islands, last week alleged in a hearing before the Dubai World Tribunal that the islands "are falling back into the sea".
Nakheel, master developer owned by Dubai government, insisted The World archipelago was not eroding into the sea.
Ali Mansour, the director of projects for marine and civil works for Nakheel, said the company had uncovered no evidence of significant erosion of the islands. But Mr Mansour said each island owner would have to take their own precautions to maintain the shapes of their islands, especially if they wanted "sandy beaches", which can be prone to tidal movement. He pointed to island G19, part of a group representing Greenland and the site of a former Nakheel sales office, as proof that the islands had long-term staying power.
Penguin Marine argued at the Tribunal last week that The World project was "effectively dead".
The company was seeking a ruling that it should not have to pay a Dh5 million (US$1.3m) annual subscription fee for the transport rights because, it claimed, the project was not moving forward. The Tribunal's three judges ruled against Penguin but have not yet published their reasons.
Graham Lovett, Nakheel's lawyer and the Gulf managing partner for the law firm Clifford Chance, said the project would move ahead, but that it was in a "coma" because of the global financial crisis.
The World is one of the most recognisable of Dubai's projects. More than 70 per cent of the 255 man-made islands laid out in the shape of the continents have been sold.
Just two developers have made significant progress on their projects. The Heart of Europe project by the Austrian property developer Josef Kleindienst has completed "vibro-compaction", a process designed to enable permanent buildings to be put up on the island
In an unrelated development, statistics released show that vacancy rates in Dubai's shopping centres are at their highest levels ever, up to 30 percent. Malls in Dubai typically average closer to 5 percent to 10 percent of vacancy.
January 20-25, 2011
Analysis and Forecast: Increasing Risk
The news could have serious long-term repurcussions on Dubai's real-estate market, the backbone of the Dubail boom.
If the allegations turn out to be accurate, the impact will be very severe on Dubai's real estate market. The World is perhaps Dubai's show piece. It has not been developed at the time of the crash and although the islands have been sold, though not entirely paid for, the crash has undermined its viability. If the allegations about the project's structural integrity are true, government-affiliated Nakheel will likely face massive claims, further excerbating the debt issue. In addition, serious questions will be raised about other mass developments that have technically been described as daring, including off shore (such as the Palm) and on shore.
Even if the allegations turn out to be false, this is very bad PR for Dubai's real estate at a time when it faces further pressure. Critics have accused the engineering quality of much of Dubai's projects as of limited integrity, due to a combination of factors, ranging from adverse climatic conditions to quality of controls, materials and workmanship. This news will only fuel speculation.