Why 2005 Is Expected To Be A Great Year For Property Investment in Dubai

Summary: To get a feel for the short term future of the property market in Dubai it's very important to examine how the housing market developed and fared throughout 2004.

To get a feel for the short term future of the property market in Dubai it’s very important to examine how the housing market developed and fared throughout 2004.

In 2004 house prices in Dubai increased significantly, the rental market began to boom, the population in the UAE expanded by about 10%, traffic flow problems worsened and demand in the real estate market began to outstrip supply.

Furthermore, increases in property prices during the second half of 2004 were more impressive than experienced during the first few months of 2004, for the first time certain developments began to enjoy substantial premiums on top of their original selling prices, more and more people entered the housing market and from about May onwards the rental market really began to creak!

Until the middle of 2004 the fact that Dubai has the fastest growing population in the world was just causing an upward pressure on demand, especially in the rental market - no real panic, just an observation!  But since the middle of the year there has been an all out scramble for real estate.

So how long is demand going to outstrip supply and how much longer can the market sustain the current price rises? 

Two points to consider: -

1) The number of people who took up residence in Dubai in 2004 is higher than the number of new properties completed in 2004.

2) The nature of the majority of building work being undertaken in Dubai is high rise.  High rise construction is harder and slower than low rise meaning that property is not going to be flooding the market to stem the tide of demand any time soon.

As a result, anyone who has been in the market for rental accommodation in Dubai since May has seen between 20 and 25% increases in the monthly rental asking price.

Yes - up to 25% increases almost overnight simply because the demand is not abating and landlords are aware that the market can sustain this increase…

The most important fact to grasp here is that when we’re talking about rental accommodation, we’re talking about tangible property - houses and flats that have already been built, finished and furnished...we’re not talking about all the property that has been bought off-plan.

There are speculators in Dubai signing up to buy property off plan, paying their deposit and then selling before the completion date at a significant profit without even having to put the final price down - the demand for property is sustaining this.

But there are currently (for a limited time only?) certain contradictions and irregularities in the property market in Dubai which may serve buyers who are quick to react in 2005 very nicely thank you!

There are certain real estate developments in Dubai whose sale and resale prices are stagnant (for a reason I will come to in a moment) but whose rental yields have risen from 6 to 7.5, even 8% in 2004 - landlords of these properties are reaping benefit from the increase in the rental market but they are not in a position to profit from a resale of the property at the moment.

Dubai Marina, the Springs, Emirates Hills and the Meadows are all such developments.  They are all suffering from the chocked up interchange from the Sheikh Zayed highway.  This interchange is now notorious - blocked morning, noon and night making property in these areas unattractive to the buyer. 

However, as the rental market is suffering from a major lack of available property, rental accommodation in these areas is not affected - in fact it is booming in line with all other rental accommodation in Dubai.

Why is this interesting? 

Because a second interchange is being built that will alleviate the current problem.

This means that while the prices of the properties in these areas are currently retarded NOW is probably a good time to buy.  Buy at a below market rate, rent out at the full market rate, sit on the property until all the road redevelopment work is done and hey presto watch the resale value of your property shoot up to be in line with the rest of the market across Dubai!

As soon as the highway redevelopment is complete the real estate in these sectors is actually expected to boom - simply because they are so centrally located in the “New Dubai”.

So, from all this we can deduce that there are opportunities available in Dubai presently that will not last long!  The demand for rental accommodation is high and strong meaning that anyone considering buying to let is almost assured a decent return on their investment, the on-going demand for property is not abating...and real estate experts in Dubai state that property prices are expected to rise throughout 2005.

If you are thinking about investing in real estate, Shelter Offshore suggest you contact a number of property agents in the areas you’re interested in and get their perspective as well.

SHARE: del.icio.us   Digg   Facebook   Google   Mixx   NewsVine   StumbleUpon   Technorati   YahooMyWeb