Dubai Property

The fact that Dubai is the worlds biggest boomtown just at the moment is cause for any investor
to take a good close look at the property market, but its far from the only one, here are few more

Many believe that Dubai property is well below those of comparable cities around the world.

Property prices are currently estimated to be c. 50% below real market value (compared to similar commercial hub cities with mature property markets such as Hong Kong, Singapore, Kuala Lumpur)

1,000sqft apt in downtown Singapore = GBP560,000.

Comparable apt in Dubai (currently in v short supply) = GBP170,000.

1 bed apts in DSC just GBP115,000.

Villa prices (per sq ft) increased by 31% in 2005.

Apartment prices (per sq ft) increased by 10% in last six months (applies to occupied, not off-plan properties).

Land prices are up 184% on this time last year.

There is 53% less development land available than this time last year.

Sources: AME Info, Dubai Investment Boutique Housing Price Index, Construction Weekly Magazine and CBR Ellis

Rental Demand

Rental rates increased by 38% in 2005.

New decree issued in 2005 to cap annual rate incs at 15%.

Cap does not apply to new rentals, or to new tenants.

Current market rental rates in Dubai c. GBP12.50 per sq ft.

A 475 sq ft studio in Dubai Sports City would yield an annual rent of c. GBP5,750 today = 10% rental return.

On completion in 2007 rental rates should have risen by another 25% - 50%, yielding GBP7,450 GBP8,450 per year, or a 12.7% - 14.8% rental return.

Dubai's construction is happening at a blistering pace. Dubai Holding's iconic
Burj Al-Arab Dhow Sail shaped Hotel was one of the first iconic buildings to
grace Dubai's skyline. However views from the top of Burj Al-Arab also
illustrate that Dubai Holding's is not the only player reshaping the Dubai
skyline. Nakheel's three Palm Islands have captured the World's real estate
watchers imagination and caused a ripple of excitement that that helped act as
the catalyst of the Dubai Real Estate boom.

A restaurant on the 27th floor of the same Hotel gives a breathtaking view of
the 300 Islands being built 4km off the Dubai coastline, but before these are to
complete, Emaar, the Emirates third largest player is due to complete Burj
Dubai. It is set to complete in 2008 and stand 700 metres high, making it the
tallest building in the World. The competitiveness between the three is being
played out on a grand scale, and Nakheel has already announced the building of
Al Burj, which will no doubt be higher still than Burj Dubai.

Lets dive in and look at the reasons Dubai has become such a hotbed for the global investor community.
Dubai is positioning itself to be a worldwide contender in the tourism industry.

Dubai is one of seven emirates that make up the United Arab Emirates, and has 1,318 kilometres of coastline and a population of about 1.5 million.

Dubais growth of the last fifty years has been incredible. In the 1966, Dubai which was already a relatively wealthy trading centre discovered oil.
The oil revenue led to accelerated economic and social reforms.

Tourism contributes to over 40% to Dubais economy, with 4.7 millions tourists in 2002, and projections of 15 million in 2010.

Dubai has sub tropical and arid climate. Winter temperatures are as low as 10 to highs of 50 degrees Centigrade in summer.
The pace of economic growth in Dubai over the last 20 years has been incredible. Trade has grown 9% per annum over the last 10 years.
With strong growth projected with the development of the following large scale projects:

Dubai Festival City

Dubai International Financial Centre

Dubai Flower Centre

Dubai Internet City

Dubai Marina

Dubai Silicon Oasis

The Dubai Mall

Burj Dubai

Dubai Healthcare City

Dubai Autodrome and Business Park

Dubai Humanitarian City

Dubai Investments Park

Dubai Media City

Dubailand

Dubai Maritime City

The Palm

The World

At present the three companies are working on combined projects of $100bn.
Nakheel itself has $30bn worth of projects under construction. Emaar is the only
one of the three listed on the stick market. Its share price consequently saw a
646% rise in a little over a year. Many say a Nakheel listing is inevitable.
Many are asking about the sustainability of such development. Population growth
is set to grow from 1.4m in 2005 to 5m by 2020.
Projects such as The World costing from 5.7bn to 22bn, and Dubailand have also been intended to capture the attention of the global media as well as the interest of
international property investors. Dubailand covers 2 billion square feet, and comprises 6 sports zones. Few predicated a few years ago that Dubai would become a burgeoning middle east financial hub in the shape of the DIFC zone, as well as having one of the largest airlines.
Dubai has a hereditary monarch. The current ruler Sheikh Mohammed bin Rashid al-Maktoum. He was succeeded his late brother, and now performs the role of Vice President and Prime Minister of the UAE. Dubai has seen exceptional growth under the stewardship of Sheikh Mohammed , and hence has one of the worlds highest GDPs per head.

Visitor numbers doubling to 5.5m upto 2004 has fuelled property speculators, and the dubai property gravy train has roared ahead. This train has been partly fuelled by petro-dollars, as well as funds also finding their way into the stock market.
The new property law will allow expats that have purchased new off plan homes to register them with the Dubai Land and Properties Department. The new law has been predicted to boost demand by allowing long term mortgages and has allowed conveyancing by International much easier, since it now sits within a legal formal frame work.

Another important underpinning to the Dubai market is that the three top players (Dubai Holdings, Nakheel and Emaar) will always be able to manipulate the supply side of the equation. The three and the government are intertwined and co-operation to avoid any property bubbles would be the most likely were the market to become hostile.

Like any market being slowly heated, a key is always at what point you are entering the market. Many believe Dubai has a long way to go yet, since the largest projects have yet to be build; mortgages are still not freely available; tourism has not yet peaked and the freehold law has only now been formally acknowledged, lastly the tax advantages are enough to make the average swiss banker wince no local income tax, capital gains tax , inheritance tax or stamp duty.

Costs of Construction Drives up Prices.
Across the Gulf States construction project management milestones are slipping. Residential, Office and Hotel projects are suffering delays due to shortages
in labour and to a lesser extent materials. The Gulf, China and India are competing for construction raw materials, and this is feeding through to
construction costs of estimates of 15% over the last two years. Expat workers labour on the large Gulf infrastructure projects, such as the Palm.

Arab GCC states 15th biggest economy.

The GCC states comprising: Bahrain, Kumwait, Oman,Qatar, Saudi Arabia, and the UAE, now have a combined GDP that would place them 15th amongst the world's
largest economies. Many of these economies have doubled in the last five years.

Emaar's chairman gives his views on Dubai's Real Estate Sector.

Mohamed Alabbar is the chairman of Emaar, which is the largest listed real estate developer within the GCC states.
Founded in 1997 it now has a capitalisation of $40bn. It developed the worlds tallest buillding the Burj Dubai. Emaar
started with building themed onshore communities, many of which were aimed at the expat community.

A recent partnership with Italian designer Giorgio Armani to create the first Armani Hotel.
It will offer 175 rooms within the Burj Dubai.

Dubai's new financial role

Dubai International Finance Centre has grown by by 15%, and has overtaken Luxembourg in the area of Islamic bonds. The six states of the GCC (Gulf Cooperative Council) have achieved double digit GDP growth. Making the GCC the fastest growing economy after China and India. An estimated $450bn of foreign assets have been added over 2006/7. A surplus of 30% of GDP is being invested and spent on domestic social and infrastructure projects. Dubai based banks are managing much of the petrodollar funds, which was not the case in previous oil price booms.
--
The author has been a keen property investor since the early 90's, and writes regular pieces for Dubai Property and Vacation Rentals