There has never been such an ambitious and creative push to establish a real estate market as has been seen in Dubai over the past three years. With no oil reserves, the Crown Prince of Dubai, Sheikh Mohammed Al Marktoum, set out to make Dubai the financial, commercial and tourist capital of the Middle East and in the space of three years has been more than successful. The country’s GDP has expanded by 17 percent over the past year and HSBC Bank estimates that there are projects under construction worth $ 42.5 billion, compared to $ 20 billion for the rest of the neighboring oil states combined.
The result has been the rise of Dubai as the most glamorous real estate investment market in the world. Nothing in Dubai is underrated. The tiny emirate, which was nothing more than a simple fishing village just five years ago, has suddenly become the Manhattan of the Middle East. Following the ‘bigger is better’ mantra, Dubai has proudly announced the world’s first seven-star hotel, Burj Al Arab, and is set to build the world’s largest shopping mall, the world’s first underwater hotel, and surprisingly the Longest indoor ski slope.
The annual number of visitors already stands at 5 million and is projected to rise to 10 million in 2007. The scale of the development has been unprecedented, as apartment blocks are built by the dozen and are sold out within days to hordes of enthusiasts. investors willing to queue overnight. to get a bargain in Dubai. The projects being launched are some of the most ingenious and ambitious the world has seen, with man-made islands like The Palm and more recently The World capitalizing on the attractions of beachfront life and redefining the geography of the world in the process. .
With real estate as unusual as this, it is not hard to see why the Dubai property market is attracting international interest on a large scale. There really is nothing like it and it seems like everyone will have a piece of Dubai. Dubai’s most exclusive developments are taking over celebrity classes and the global elite. Aged English rocker, Rod Stewart is already the proud owner of Britain [The World’s miniature Britain that is!] and the villas along the Palm are being bought by sports stars, movie stars, and anyone with more than 1.5 million euros to spend on a private beachfront retreat.
If so much has been achieved in three years, where will Dubai go from here? Nakheel, the company behind the extraordinary Palm and The World projects already has its eyes, literally, on a new development. Dream City, like Palm, is also a series of man-made islands, but it is significantly larger than the Palm. When finished, Dream City will be in the shape of an eye, with the residential element in giant lashes stretching out into the Persian Gulf. Villas at Dream City start at EUR425,000 for around 371 square meters (4,000 square feet) of accommodation. Townhouses start at € 200,000, while one- and two-bedroom apartments start at € 150,000.
For the real estate investor looking for a lucrative return, a new market is always risky and the fear is that the market will crash shortly after taking off. With a lot of anecdotal evidence to suggest that property prices in Dubai are increasing by as much as 60% in a year, it’s tempting to rush in and take advantage of a piece of the action. But astute investors will have to consider whether it is too fast.
The pace of the real estate market in Dubai makes it a dream for speculators. It is not strange that the properties have been transferred up to a dozen times even before the building is completed. Many opportunistic investors are booking 10-20 villas in new developments, selling them at a significant profit before they are completed.
Taking advantage of 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 lenders are trying to maintain some control in 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 popularity of the development.
All signs suggest that the initial hype is subsiding and prices are stabilizing. A year and a half ago 900 houses in a development sold out in 7 hours. Many believe that demand will continue and prices will continue to rise, although not at the frantic pace they have been rising for the past two years.
Compared 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 mid-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 high immigration from Europe, the Gulf region, and the Indian subcontinent. More than 100,000 more people are expected to arrive in Dubai each year. This large-scale immigration is sure to sustain the rental property markets.
Other real estate markets are seeing rental yields plummet. Too many investors buying properties and not enough tenants to rent them! Ireland, Great Britain and many of the new European capitals are seeing yields drop below 3%. In Dubai, rental yields have fallen a very healthy 8-9%, but are now holding firm at 6-7%. The fact that rentals in Dubai are paid in advance, sometimes up to a year in advance, is certainly a motivating factor for those considering purchasing property to rent in Dubai. On the downside, service charges in new developments can be high, up to £ 4000 per year and can be requested by the developer in advance.
Despite the current boom and massive immigration to Dubai, cautious investors are raising understandable questions about property security in the UAE. So far, no law has been passed confirming 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 estate. While Dubai is committed to encouraging foreign investment, they rule by decree and decisions can be changed overnight at the whim of the current ruler. The government has promised that freehold will be granted in the near future. When this happens, investor confidence in the Dubai property market is likely to further increase.
For the real estate market in Dubai to develop with any degree of stability, it is essential to capture the interest of second home owners and expats looking to relocate. If the market continues to be driven by speculators, the possibility of a speculative bubble is not unlikely. A review of real estate laws for foreign investors should foster a more stable real estate investment climate, helping to avoid any collapse that could be caused by a rapidly depleted investor base of opportunistic speculators.
