Ten reasons Dubai real estate will continue to boom

Dubai real estate may well be the next asset class = bubble to=20 be created by inappropriate interest rate levels set by the US, = alongside Hong=20 Kong property. But there are at least 10 good reasons to think the = present=20 realty boom in Dubai will continue for rather longer than many outside = observers=20 believe possible.

United Arab Emirates: Sunday, February 10 - 2008 at = 13:03

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They may seem high now, but property prices will = continue to rise

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1. Dubai mortgage rates are around 8.5 per cent and = have yet to=20 adjust to the recent US rate cuts, which they have to do because of the = dollar=20 peg to the dirham. Just a couple of years ago local mortgage rates of = seven per=20 cent were available. Therefore the downward pressure on the cost of home = finance=20 is clear, and if the local mortgage market follows Hong Kong and becomes = more=20 competitive, then interest rates could go much lower, making it = significantly=20 cheaper to buy than rent. Real interest rates are already negative due = to high=20 local inflation.

2. Rental yields in the Dubai market of 7-10 = per cent=20 are abnormally high by international standards. Rents are unlikely to = fall in a=20 booming market, so it is more likely that rising capital values will = gradually=20 pressure yields down towards global levels. There is no reason why = rental yields=20 should be higher in a booming city like Dubai than in a city where the = economic=20 outlook is poorer.

3. The hype about Dubai development projects = has=20 admittedly duped even this skeptical correspondent over the years. The = fact is=20 that far less supply is coming on stream than promised by = overenthusiastic=20 developers, due partly to limited supplies of manpower and materials. = Dubai=20 Properties is one of the biggest and has just said it will deliver 5,000 = units=20 to the freehold market in 2008 which is not nearly enough to meet = surging=20 demand.

4. Dubai house prices are still low in absolute terms in = comparison to other global cities with similar salary levels. The HSBC = survey of=20 house prices in comparison to per capita GDP put Dubai and Abu Dhabi = near the=20 bottom. This is a historic anomaly that will be eliminated by price = rises.=20

5. Six years ago, when Dubai freehold began, it was a market = without any=20 formal legislation and regulatory infrastructure. Now it has world-class = laws, a=20 state-of-the-art land registry and a strongly-led regulatory authority. = Hope has=20 been replaced by experience.

6. The Dubai Financial Market = crashed in=20 2006 pushing local investors into property as an alternative. It = recovered in=20 late 2007, but is now again trending downwards with global stocks, and = has=20 become highly volatile, shifting over 10 per cent in a day. Expect stock = market=20 participants to again seek a more stable alternative.

7. Indeed, = the=20 absence of investment alternatives is a major theme for 2008. Global = stock=20 markets have had their worst January in history. Recent US interest rate = cuts=20 leave deposits paying 2.8 per cent. This makes Dubai real estate look = attractive=20 as an alternative. Where else offers such a return?

8. In the = same way=20 that the local stock market crash attracted foreign bargain hunters to = invest=20 last year, foreign investors in search of yield are also increasingly = investing=20 in Dubai real estate. Problems in the UK housing market might be = dissuading some=20 buyers, but large numbers of oil-rich Russians, for example, are now = buying in=20 Dubai.

9. Dubai still has some undeveloped market niches in real = estate,=20 such as holiday lets and fractional ownership, which are big and even = dominant=20 market phenomena in many beach resorts around the world. This source of = higher=20 rental yield on property has therefore yet to be fully tapped. =

10. The=20 Dubai Government has been the most proactive developer in the emirate, = and its=20 recent legislation and regulatory initiatives suggest that this support = is not=20 only likely to continue, but will respond appropriately to any adverse = market=20 developments.

See also:
Special Report: = How to Buy=20 Property in the UAE
Ras Al=20 Khaimah targets property and tourism for economic growth
Will Abu Dhabi property = sales overtake=20 Dubai this year?
Rents set=20 to skyrocket as property shortage bites

Readers'=20 recommendation
This story is currently rated 7.75 of = 10 based=20 on 35 readers' recommendations

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Peter J. = Cooper,=20 Consultant Editor
Sunday, February 10 - 2008 at 13:03 UAE local = time=20 (GMT+4)

Replication or redistribution in whole or in part is = expressly=20 prohibited without the prior written consent of AME Info FZ LLC / Emap=20 Communications.

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