Inflation sparking price rises in Dubai

13 November, 2007

Inflation is sparking property price rises in Dubai as supply continues to lag behind demand. Fears from some quarters that an imminent oversupply of real estate in Dubai would depress the sector in 2008 have now been pushed back by most observers to 2010, due to construction capacity constraints and the continued tide of new immigration. Indeed, the main concern is that local inflationary pressures are going to drive rents and prices higher.

It was not very long ago that Dubai property watchers believed that this autumn would be the moment that the market tipped into oversupply, with the prospect of declining prices and rents in 2008.

But today it would be hard to find a single analyst supporting that view. The new consensus is that construction delays and the continuing economic boom in Dubai mean that it will be 2010 at least before the proverbial shoe drops, and even then the slowdown will be gradual rather than a bursting of a bubble.

Why is it that the harbingers of doom have been so convincingly trounced by the outcome this autumn?

The short answer is that analysts overestimated the speed at which construction projects could be completed in Dubai. According to the original schedule, The Palm Jumeirah should have been completely finished by the end of this year, and yet the contract for the landmark Trump hotel complex has only just been awarded and the hotel sites on the crescent remain vacant.

Analysts also underestimated the strength and longevity of the Dubai economic boom. Again this can be forgiven, who would have forecast oil at $96-a-barrel even two years ago?

What is on the agenda instead for the immediate future is a period of further supply and demand pressures on the local housing stock in Dubai. That will mean higher rents and selling prices. This will be compounded by the impact of falling local mortgage rates. There will be more money available to pursue the limited housing stock and prices will be driven even higher.

At some point these pressures will ease. Perhaps the world economy will slow and consume less oil and that cools the Dubai economy with a lag of around six months. And eventually the mega projects will deliver a supply of property nearer to the level of demand.

However, the fact of the matter is that earlier wary forecasts have proven misleading. At least now observers are taking a more detached and skeptical view of the information on offer, and that might mean that the conclusions drawn are that bit more accurate. But we will probably have to wait until 2010 before that can be really known.

Personally I put little sway in the wary forecasters; its easy to play safe but rarely does safe equate to gains. My view is that no-one can predict the longer term future, but if gains are there to be had now, 1 - 3 years, then strike and take what you can and don't miss the boat. I like to compare the whole situation with the current UK market: invest in UK now and you may achieve some moderate appreciation over the next 2 - 5 years, may, but nothing stellar. In fact, right now in the UK the wary observers are predicting a slight correction in 2008, which is not good for investors. Invest in Dubia property now and you get the short-term gains, the huge potential for continued long-term gains, and in my view a lot less risk than the UK. Will your Dubai investment be underwater in 1 year's time - HIGHLY unlikely.

Dubai property boom to continue

October 24th, 2007

The property boom in Dubai will continue and is set to expand further across the UAE, says Khaleej Times.

This according to AME Info which studied the attitude of property buyers in the UAE in a survey entitled "Buying Property in the UAE".

"The AME Info Buying Property in the UAE survey, part of a wider report on property in the region, found that Dubai is still the emirate of choice for many buyers," said the online news firm's editorial director Rob Jones. "But as prices skyrocket, it is having a ripple effect that is reaching other emirates."

He added: "Overall the survey show there is a thirst to buy in the UAE — many people see it as a good investment and want to get in before prices go higher to escape the annual cycle of rental increases."


The survey said that 84 per cent of the more than 1,300 respondents plan to buy property in Dubai. It stressed that almost half of those wanting to own property plan to live in it, showing interests to stay longer in the UAE.

Annual property prices to increase 25 per cent

October 19th, 2007

Annual property prices in Dubai are set to be up by 25% over the next ten years said a senior official of a Dubai based developer. He also predicted that 45,000 additional units of property are needed per year in Dubai until 2020.

Announcing it at Cityscape, a trade show for institutional investors in the real estate industry, the developer cited Dubai’s growing population and steady economic growth as the reason.

There is a lot more to Dubai than meets the eye

The Gulf News reports today as follows...

It has been suggested time and time again that the property market in Dubai is a huge bubble destined to burst. In my opinion, this is a long way from the truth. The reality is that Dubai has cleverly positioned itself as the gateway to the world for countries such as India and Pakistan...
... In attracting such a large number and wide range of corporations, it has already become an international commercial and economic hub and a leading tourist destination. With the plans that are in place, things will only get better...
... Dubai's Strategic Plan 2015 has one clear objective, which is: "To become the commercial, financial and recreational hub of the region." I have no doubt this objective will be realised... [read more].
Report by Ryan Mahoney, Special to Gulf News, August 30, 2007

BENEFITS OF DUBAI PROPERTIY INVESTMENTS

There are many benefits of investing in residential or commercial property in Dubai. Dubai is perhaps the most vibrant developing city in the world, a fact recognised by private and institutional investors, as well as the corporate world.

Eight out of the world's largest companies now have major offices in the city, and nearly 400 of the Fortune 500 companies are represented there too.

The Emirates is rich with the proceeds of oil production which has formed the backbone of the economy for many years, but the government has the foresight to know that this will not always be the case and is investing heavily in diversifying its own economy. Indeed it has set targets concerning its GDP (gross domestic produce), and stated that by 2010 only 10% of its GDP will be from the oil industry. Such has been its committment that this target was smashed four years early, in 2006. Growth in Dubai's leisure, tourism and commercial sectors has been so swift that oil represented only 3% of the GDP in 2006.

Some other facts and figures about Dubai:
- 0% income tax, 0% capital gains tax
- 0% corporate tax
- No foreign exchange controls
- No trade barriers or quotas
- Stable, freely convertible currency pegged to the dollar

Some facts and figures about the developers we represent:
- $20bn conglomerate with a diversified range of businesses (including property development)
- Employs over 8000 people across operations in 20 countries
- Its property development business is the Middle East's largest private master developer, and one of UAE's largest private businesses
- 4200 million sq ft of luxury and 9500 customers, across developments in 6 countries
- 16 offices, 68 projects

Some investment and return figures:
Lake Terrace (2003 - now) - 63% annual appreciation, 190% total appreciation
Lake View (2004 - now) - 56% annual appreciation, 111% total appreciation
Lago Vista (2005 - now) - 34.5% annual appreciation
Marina Terrace, launched in 2003, investors have made 228% total appreciation plus 23% rental yields
Waves, launched in 2002, investors have returned 213% appreciation and 19% rental yields

The pros of Residential v's Commercial:
Residential - strong capital growth, good rental yields, taper relief 40% after 10 years
Commercial - stronger capital growth, better rental yields, taper relief 75% after 2 years

About Dubai

City Of Future
Few modern cities can compare to Dubai - a land where the sands of the desert reveal the potential for one of the most significant international hubs of the 21st century. In this city, quality is not just a strategy. It is a style of working, living and thinking - contributing to the growth and success of a vibrant community.

Dubai's growth in the last decade has been phenomenal; and there are only signs of faster development, with massive real estate and leisure projects attracting international attention. The city has built an enviable infrastructure and earned a reputation for constantly reinventing itself, chalking out strategic plans for development.

Dubai is an international success story in terms of economic development; and a monument to modern architecture, being home to landmarks like the Burj Al Arab - the world’s only seven star hotel; and the two palm shaped islands considered the eighth wonder of the world. Over 45 mega development projects are currently underway here, including the Hydro polis, a hotel that will be built partially under the sea; and Dubailand, a new £3billion Disneyland style theme park.

Economy
Dubai's gross domestic product as of 2006 was US$46 billion. Although Dubai's economy was built on the back of the oil industry, revenues from oil and natural gas currently account for less than 3% of the emirate's revenues. It is estimated that Dubai produces 240,000 barrels of oil a day and substantial quantities of gas from offshore fields. The emirate's share in UAE's gas revenues is about 2%.

Dubai is an important tourist destination and its port, Jebel Ali, constructed in the 1970s, has the largest man-made harbour in the world. Dubai is also increasingly developing as a hub for service industries such as IT and finance, with the establishment of a new Dubai International Financial Centre (DIFC). The government has set up industry-specific free zones throughout the city. Dubai Internet City, combined with Dubai Media City as part of TECOM (Dubai Technology, Electronic Commerce and Media Free Zone Authority) is one such enclave whose members include IT firms such as EMC Corporation, Oracle Corporation, Microsoft, and IBM, and media organisations such as MBC, CNN, Reuters and AP.

Property
The government's decision to diversify from a trade-based but oil-reliant economy to one that is service and tourism-oriented has made real estate more valuable, resulting in the property appreciation from 2004. Large scale real estate development projects, undertaken by firms such as Damac Properties, have led to the construction of some of the tallest skyscrapers in the world, and luxuriously appointed residential and commercial units.

Recently, the Land Department set up the Real Estate Regulatory Authority (RERA) to regulate developers and safeguard consumers from errant parties, which is seen as a good move to protect the increasing numbers of overseas property investors. All developers are required to register with the RERA, provide documents and verifiable facts about their properties, and setup escrow accounts to protect consumers' money.

Financial Market
The Dubai Financial Market (DFM) was established in March 2000 as a secondary market for trading securities and bonds, both local and foreign. As of Q4 2006, its trading volume stood at about 400 billion shares worth US$ 95 billion. The DFM had a market capitalization of about US$ 87 billion.