This article explores the role of liberalized real estate markets in shaping financial‐sector development in the Arab Gulf region. Since 2001, record oil revenues and the inflow of repatriated wealth into the region have generated immense demand for new, productive destinations for surplus capital. Gulf Cooperation Council states have subsequently undergone rapid growth that is intimately tied to the regulatory transformation of urban real estate markets and the circulation of surplus capital from oil rents to the ‘secondary circuit’ of the built environment. With an emphasis on the city of Dubai, we employ the notion of diversification by urbanization to trace the re‐regulation of real estate markets and highlight how these strategies have subsequently shaped Gulf financial markets. Through an examination of the impacts of real estate mega‐project development on local banking credit, equities and Islamic financial markets, we reframe recent urbanization in the region as a process of financial re‐engineering, and identify the emergence of capital groups whose accumulation activities are tightly connected to both the real estate and financial circuit.