Dubai or not to Buy? A Short Assessment of the Dubai Property Market

Never has there been such an ambitious and creative drive to establish a property market as has been witnessed in Dubai over the past three years. Running short on oil reserves,Dubai’s crown prince,Sheikh Mohammed Al Marktoum,set out to turn Dubai into the financial,commercial and tourism capital of the Middle East and in the space of three years he has more than succeeded. The country’s GDP has expanded by 17 per cent over the past year and HSBC Bank estimates that there is .5 billion worth of projects under construction,compared with billion for the rest of the neighboring oil states put together.

The result has been the rise of Dubai as the world’s most glamorous property investment market. Nothing in Dubai is understated. The tiny emirate,that only five years ago was nothing more than a simple fishing village has suddenly become the Manhattan of the Middle East. Following the mantra ‘bigger is better’ Dubai has proudly announced the world’s first seven star hotel,Burj Al Arab and is set to construct the world’s biggest shopping mall,the first underwater hotel and amazingly,the longest indoors ski slope.

Already the annual number of visitors stands at 5 million and is set to rise to 10 million by 2007. The scale of development has been unprecedented with apartment blocks being constructed by the dozen and selling out within days to hordes of zealous investors prepared to queue overnight to bag a bargain in Dubai. The projects being released are some of the most inventive and ambitious the world has seen,with man made islands such as The Palm and more recently The World capitalizing on the attractions of beach front living and redefining the world’s geography in the process.

With real estate as out of the ordinary as this,it’s not difficult to see why Dubai’s property market is attracting such large-scale international interest. There really is nothing like it and it seems everybody who’s anybody will have a piece of Dubai. Dubai’s more exclusive developments are being snapped up the celebrity classes and the world’s elite. Ageing English rocker,Rod Stewart is already the proud owner of Britain [The World's miniature Britain that is!] and villas along the Palm are being bought by sports stars,film stars and anybody with upwards of €1.5 million to spend on a private waterfront retreat.

If so much has been achieved in three years,where is Dubai to go from here? Nakheel,the company behind the extraordinary Palm and The World projects already has its eye,literally,on a new development. Dream City,like the Palm is also a series of man made islands but out sizes the Palm significantly. When finished,Dream City will form the shape of an eye,with the residential element on giant eyelashes extending out into the Persian Gulf. Villas at Dream City start at €425,000 for around 371 sq m (4,000 sq ft) of accommodation. Townhouses start at €200,000,while one and two-bedroom apartments start at €150,000.

For the property investor seeking a lucrative return,a new market is always a risky one and the fear is that the market may collapse soon after it has taken off!. With plenty of anecdotal evidence to suggest that property prices in Dubai are rising by as much as 60% in one year,it’s tempting to rush straight in and grab a piece of the action. But the canny investors will have to consider if it is too much too fast.

The pace of the property market in Dubai makes is a speculators dream. It’s not unheard of for properties to have been transferred up to a dozen times even before the building is complete. Many opportunistic investors are booking 10 to 20 villas in new developments,selling them at significant profits before they have been completed.

Cashing in on this and perhaps in an effort to cool the market,builders are charging a fee of up to 7% each time a property is transferred and lending institutions are trying to keep some control on the market by agreeing to finance only the original sale price. In the secondary market,prices can exceed the original price by 10-70%,depending on the development’s popularity.

All the indications are suggesting that the initial hype is easing and prices are settling. A year and a half ago 900 houses in one development sold out in 7 hours. Many believe that demand will continue to be sustained and prices will continue to rise,though not at the frantic rates they have been rising over the past two years.

In comparison to other new and emerging markets,such as those in Central and Eastern Europe,Dubai appears to be a more attractive investment. Prices in the middle market are comparative to those in Eastern European cities such as Tallinn and Krakow. Unlike these countries Dubai has the sunshine factor and a glamorous edge,which is surely contributing to the high immigration from Europe,the Gulf Region and the Indian subcontinent. Over 100,000 extra people are expected to arrive in Dubai every year. Such large-scale immigration is sure to sustain the property rental markets.

Other property markets are seeing rental yields drop through the floor. Too many investors buying up properties and not enough tenants to rent them! Ireland,Britain and many of the New European capital cities are seeing yields drop to below 3%. In Dubai,rental yields have dropped from a very healthy 8-9% but are now holding firm at 6-7%. The fact that in Dubai rents are paid in advance,sometimes up to one year in advance,is surely a motivating factor for those considering a buy-to-let property in Dubai. On the downside,service charges on new development can be high,anywhere up to £4000 per annum and may be requested by the developer upfront!

Despite the current boom and huge immigration into Dubai cautious investors are raising understandable questions about the security of ownership in the UAE. As yet,no law has been passed to confirm the right of foreigners to own property in any of the projects launched to date. However,the UAE allows individual emirates to issue their own legislation to regulate ownership of real property. While Dubai is committed to encouraging overseas investment,they rule by decree and decisions can be changed overnight the whim of the current ruler. The government have promised that freehold would be granted in the near future. When this happens it is likely to further boost investor confidence in the Dubai property market.

If the property market in Dubai is to develop with any degree of stability,capturing the interest of second homeowners and expats seeking to relocate is essential. If the market continues to be speculator driven,the possibility of a speculative bubble is not unlikely. A revision of property ownership laws for foreign investors should encourage a more stable property investment climate,helping to avoid any crash that might be caused by a quickly exhausted investor base of opportunistic speculators.

Dubai Property Market Prospects

Introduction: Dubai has been one of the biggest success stories in the overseas property industry. The growth in the market,which in the first 11 months of 2007 was reported to be 18.7 per cent in both villas and apartments,has sustained at a high rate for some years now,prompting some investors to buy sight unseen. Commentators are split as to whether this growth can be sustained,but investment in the real estate sector is predicted to provide 35 per cent of Dubai’s GDP over the next five years.

Supply & Demand: One of the biggest contributory factors in the growth of the Dubai property market has been the fact that demand has always managed to outstrip supply. The regular shortfalls in supply are often due to late-running projects and the immense speed of the influx of new workers and residents who all need somewhere to live.

Investment bank EFG-Hermes has reported that the market will be subjected to its biggest shortfall in supply in the second half of 2008,which means prices will hit a peak of sorts this year. After that,the report suggests,the market will begin to swing in the favour of buyers. It says there will be 64,000 units to come onto the market as available for occupation in 2008,and a further 68,000 in 2009.

Tourism: Tourism is the most important industry for the future of Dubai and is also its fastest-growing industry,with over 11 per cent of the GDP coming from holidaymakers,and generating .9 billion of economic activity. The introduction of huge new attractions will fuel the growth in tourist numbers,who will be serviced by the huge new Dubai International Airport.

On the other hand,the number of hotel rooms in the Emirate is set to rise by around 33 per cent per year until 2011,which has led industry watchers to suggest that hotel occupancy rates may fall as low as 60 per cent,compared to the current levels of more than 80 per cent.

Immigration: The lenient tax regime in Dubai has been one of the major attractions for property investors and a large number of businesses,many of which are multinational companies,and some of which have made their headquarters in Dubai. The investment banking sector is predicted to undergo huge growth in Dubai in 2008,adding to the internet and media hubs in the city. This brings with it an influx of people with large salaries who are looking for somewhere to live,and should also employ a proportion of the local population in well-paid positions.

Rentals: Letting property will be one of the most important parts of the future for the Dubai property market. Since November 2005,there has been a government-imposed rental cap at seven per cent of the property value in order to protect the tenant market from potentially astronomical rises in rental costs due to the gap between supply and demand. This cap is currently not due to be renewed at the end of this year,allowing landlords a completely free market. This will push many locals in Dubai to consider buying their own property instead of renting to protect themselves from the potential rises.

The real estate market in Dubai has had its detractors for some time now,people who seem to be keen to see the property buying boom there come crashing to a halt. However,Dubai keeps on fighting back,sticking resolutely to its free,tax-efficient methods. The result has been a highly modern centre of business excellence,leisure activities and innovative development.

Buying Property in Dubai is an Exciting Proposition

‘Buying property in Dubai’ has been one of the frequently discussed topics,especially among groups actively analyzing various regions for overseas property investments. In fact,on various occasions,the discussions have been transformed into heated debates,with the participants quite adamant on establishing their opinion on the subject. Well,if you have been a witness or involved in such events and come away feeling confused about whether buying property in Dubai is for you,then this article could assist you in making up your mind.

Buying property in Dubai,as an overseas investment avenue,is quite an interesting proposition.
The property market has grown at a phenomenal pace thus pumping up the rents and prices,and demand continues to grow. Investors from all over the world are closely analyzing the region to look for the next property to invest in.

Property investments in Dubai

In an attempt to understand the supply movement in Dubai’s property market,let’s begin by identifying the plus factors offered by the region,for those contemplating investment.

Dubai is a rich nation and there isn’t any income or personal tax to be concerned about (hurrah!). The government has invested heavily in the infrastructure,and the Dubai landscape resembles an American city due to all the glass and concrete building. The tallest skyscrapers and the largest projects,like the Burj Dubai,are currently the identification marks of the city. This present scenario,more or less,is the realized output of Sheikh Mohammed Rashid Al-Maktoum (Dubai’s ruler). Dubai has four ports; the largest port is at Jebel Ali,the world’s largest artificial harbor created over 20 years ago,and is one of the world’s busiest ports for container shipping.

When buying property in Dubai,the property market is quite tempting in terms of prices and prospects. This includes the construction market,which is moving at a commendable pace to quickly create grander structures than the already applauded; and they easily qualify on the quality parameter. In fact Dubai’s Emaar Properties is,by now,working towards the construction of even grander structures,to further lure the interested. Foreign ownership of property is a recently introduced concept,which highlights the positive political framework in this direction. Tax advantages are explicit,which further strengthen the reason for buying property in Dubai.

To encapsulate the scenario,it can be stated that the Dubai property market’s expansion drive is comparatively young,but owing to the rapid pace of developments the market has matured a little earlier than expected,thus perhaps raising concerns. However,indications of further stabilization are apparent.

Despite the boom,buying property in Dubai is still cheaper than various other commercial cities of interest. For comparable constructions in Dubai and London,the difference could be 4 times the base price. The tax advantages are also superior in contrast to various other overseas property investment options. According to recent research,the British own more property in Dubai than any other foreign nationality. One of the reasons Brits are heading for Dubai is because they can earn more income. A ‘Wealth Ranking Survey’ by NatWest International showed that expats can earn up to 40% more on average than their peers in Britain.

Dubai is expected to grow as a tourist attraction,as well as being the preferred business destination,while other countries present negligible scope in that direction. Dubai regions / projects,which are worth checking into include: Dubailand; The Burj Dubai Complex; Dubai Marina; Dubai Waterfront; Business Bay,etc. In conclusion,if you’re looking for an investment,buying a property in Dubai could be exactly what you need.