The Long Term View On Dubai’s Property Market

Dubai’s economic recovery was underlined in the 2013 annual report from the Dubai Chamber of Commerce and Industry showing a five per cent increase in GDP in 2013, and exports and re-exports by its members growing by eight per cent.

Last year the recovery fuelled up the local property market again with the highest house price rises in the world. However, this comes from a low base and there is no sign of a bubble forming, although the authorities have thought fit to double transaction taxes and raise mortgage deposits to stop real estate prices surging out of control.

If experience of other global property markets is any guide this will prove a hopeless mission. House prices tend to go up and up in open economies with strong growth prospects, whatever the official interventions. The population just has to learn to live in smaller and smaller homes. They call it ‘shoebox syndrome’ in Hong Kong and Singapore.

The middle classes in Dubai don’t live in shoeboxes. They have spacious homes similar to the US or Australian lifestyles. Prices per square foot, or in relation to local salaries, do not even figure in a recent study of the least affordable global housing markets published by Bloomberg. That day will come as the UAE expands in the run-up to the 2020 Expo.

Vice-President and Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum has just issued a raft of decrees to get things moving to accommodate 20 million visitors by 2020. That means more hotels, on top of the 109 projects currently under construction.

Emirates Airline will expand its fleet of super-jumbo A380s to 90-plus. It is not hard to imagine the demand for accommodation soon outstripping the actual supply. Even in Dubai it takes time to build and finance real estate.

It is quite conservative to forecast a doubling or trebling of house prices in Dubai by 2020 as the city’s house prices become more aligned with the top hub cities of the world, and house prices continue to surge year after year. There is already a flow of money from other global cities into high-end property in Dubai, and Dubai built plenty of real estate for investors to acquire in its runaway boom.

Sure in the short-term higher global interest rates this year and measures taken by the government could calm things down or even induce a mild correction. But real estate is normally a long-term proposition for investors and on that basis Dubai is still an excellent arbitrage opportunity.

Investors should be selling up in overpriced cities like London or Hong Kong and buying in Dubai where the capital and rental growth will be much higher. Can we say that again? If you want to make high returns out of real estate by 2020 then rotate out of your overvalued homes in other hub cities and buy in Dubai!

The solid choices for the future would be anything on the Palm Jumeirah or in the Dubai Downtown around the Burj Khalifa, the world’s tallest building. The serviced apartments by Emaar and Damac are selling well and could prove a big winner, provided the rental side of the operation is run properly and this won’t be known until it starts up. I don’t really like this additional level of third- party risk for a property investment but can understand the lifestyle choice it represents. That said early off-plan buyers in the last Dubai boom did exceptionally well and that could well be the case this time around.

Take a shrewd and long-term view of Dubai real estate and you can make a lot of money and also enjoy an exceptional lifestyle. Consider Al Barari’s launch of the Seventh Heaven Sky Villas last month. This top-end Dubai eco-oasis features 157 homes from 2,000 to 6,600 square feet priced from a rather modest $820,000. By the standards of global hub cities this is not expensive.