Dubai Property Facing a Tough 2007
There are too many global economic uncertainties that could negatively affect the property market in Dubai in 2007 for us to categorically state that an investor would be mad to miss the ever increasing property prices and rental yields in the UAE.
While there remains an incredibly strong driving demand for property in Dubai, a downward turn in the US economy, a drop in demand for oil or a supply to the market of excessive property stock for example could each put to an end the record rates of growth enjoyed by real estate investors in Dubai in the past few years and Dubai property could well be facing a tough 2007.
Having said that, there is no denying the demand that exists in Dubai for more and more completed property stock - every month some 5,000 affluent families relocate to live in Dubai at least temporarily according to local immigration authorities, and each of these households require accommodation immediately which proves that those with completed property stock in Dubai could continue to do very well throughout 2007 and beyond.
As has been suggested by numerous sources therefore, Dubai appears to be a property market of two very distinct halves…namely the off-plan property market and the established resale and rental market…the fortunes of each could be hugely divergent in 2007.
The Off Plan Property Market in Dubai in 2007
In the past property investors have made a killing from buying properties off plan in Dubai, paying just a deposit and maybe one or two stage payments and then flipping the incomplete units back onto a market where demand is hungry for such property stock. Those who have bought in particularly well located and attractive high rises have often profited most by buying at the point of project conception and then holding stock until all other units had been sold out…by waiting until demand for properties was outstripping the supply and then re-floating off plan stock on to the waiting market, investors have taken good profits in a relatively short space of time.
But for such a market for profitability to continue there has to be a driving demand from other investors to buy flipped on properties and evidence suggests that this will not continue to be the case throughout 2007. Profits from such an approach have softened of late for one thing and the thought that Dubai's property market can continue rising unabated and unchecked forever is naïve at best and dangerous at worst. Buyers who take this approach never intend paying for their properties - in fact many don't even have the funds readily available to pay for their properties. Instead they rely on the fact there will be a waiting market hungry to buy resales off plan and all evidence is suggesting that this demand is waning and that the off plan market for investors could show signs of weakness in 2007.
The Established Resale and Rental Property Market in Dubai in 2007
The established residential property market in Dubai is quite a different story. Dubai has worked exceptionally fast and very well so far to take its economy's success away from over reliance on oil which is a good thing if demand for oil drops and/or prices of oil ever decrease. In taking the economy's reliance away from the oil industry Dubai's leaders have opened up extensive and diverse business opportunities for international companies in many fields who have taken advantage of the emirate's low/no tax policies and established extensive operations in Dubai. These international companies require workers and as a result thousands of professional expatriates are relocating to Dubai every month.
Each and every individual, couple or family arriving requires decent accommodation within easy reach and short commute of the main free trade zones and business areas and as a result completed property stock across Dubai is intensely in demand meaning rental rates are soaring. Thanks to construction delays that are worsening as a shortage of workers and an excessive increase in the price of building materials begins to hit Dubai's constructors, the predicted number of units to be completed in 2007 has been revised down and this situation also means that some constructors are holding back on releasing new projects which will keep the demand/supply ratio out of kilter for a few more years yet.
An investor who wants a good performing property asset in Dubai needs to buy completed stock in a good location that is not highly adversely affected by the commute issues plaguing Dubai at the moment - and then and only then can they be assured of strong returns in 2007 and beyond.
Source: Amberlamb (January 2007)