Why You Should Buy Dubai Property

The long perspective for investment makes a great deal of sense, particularly with real estate that is hardly the most liquid of assets. Booms and slumps in real estate come and go, and correctly judging the cycle, or even coming somewhere close to it, is a way to make a lot of money.

When the Ruler of Dubai, HH Sheikh Mohammed bin Rashid Al Maktoum, said he would make property investment for foreigners legal in 2002 that was the starting point for the last boom in the emirate. It was a hesitant start. The Second Gulf War hardly helped in 2003.

But as it became clear that the aftermath of the war would be a troubled peace, much higher oil prices and lower interest rates – this was a cocktail bound to result in an economic boom in the hub city of the Arabian Gulf and in particular for its newly liberated real estate sector.

That came to pass until the global financial crisis of 2008 and the mother of all liquidity squeezes that dashed Dubai property which, by then, had become a speculative bubble full of dodgy operators many of whom later ended up in prison.

The sector has been through a painful process of consolidation, downsizing and rationalisation since then and some of the debts left over are still to be fully sorted out. However, since August 2011 when the $25 billion Dubai World debt restructuring for Nakheel was signed off, things have been steadily improving.

Indeed, there are many signs of a true recovery in the Dubai property market this year. The oversupply inventory has fallen dramatically due to a massive influx of new residents and tourists, mainly as a side effect of the Arab Spring unrest in many surrounding countries. This put upward pressure on rents in the best locations and led to a shortage of villas in planned communities. House prices have recovered though most strongly in completed communities, but we are also starting to hear about better prices in desert locations.

Going forward the position of Dubai real estate today is not so different to 2003 and the start of the last boom. We have a potential geopolitical crisis on the horizon in the form of the possible Israeli attack on Iran. We have the US Federal Reserve committed to keeping interest rates low until at least mid-2015. And we have high oil prices and money printing by central banks that ought to keep oil prices higher than they would otherwise be.

That seems an excellent formula for real estate investment in Dubai, whatever it might mean for the rest of the world. So how is it best to invest in Dubai real estate right now?

In a summer column here I gave villas in Jumeirah Park the thumbs up. The three-bed Legacy Large that we liked at Dhs3 million then now sells for Dhs3.7 million, a 20 per cent gain in five months. We still see value in these particular villas because they are available at a discount to the market rate for several reasons:

a). They are not yet finished and due for handover by the year-end;
b). You only get a mortgage from ADCB on them so that limits the market; and
c). The high quality of this product is not appreciated in the market yet.

Last month we attended the launch of Emaar Properties’ first new skyscraper since the global financial crisis of four years ago.

Emaar was targeting the market for serviced apartments with an air-conditioned link to its Dubai Mall. It worked very well with an instant sell-out for the 542 apartments in the 63-storey skyscraper, the second tallest in Downtown Dubai after the world record holding Burj Khalifa.

That said these are among the most expensive real estate in Dubai and better value can be found elsewhere, particularly if you are looking for rental income rather than capital growth. Think location, location – and in Dubai that means proximity to the beach or the central business district.