Dubai Focus

Dubai… one of the biggest and most exciting emerging markets, not only does the city-state enjoy year-round sunshine, it is also the focus of the biggest property rush seen in recent years. Observers have compared this phenomenal growth to the real estate boom in turn of the century New York.

Dubai has changed from an economy based on oil and trade to a centre for the service industries of tourism, trade, professional and financial services. This transition has included a rise in property construction and a massive proliferation of large-scale residential building developments in the past two years. Dubai has recreated itself in the image of the cutting edge financial sector, creating buildings appealing to wealthy indigenous habitants as well as the wealthy expatriate, and offshore population. Dubai offers Swiss-style banking privacy, and the "Monte Carlo" lifestyle.

Dubai is an investors dream; it is tax-free, has low inflation, a high standard of living combined with low cost. Socially, Dubai is a city at peace, with a low crime rate and very different communities happily coexisting. Moreover, a large bulk of its investment property comes at a reasonable price. Dubai has a property market that is five times cheaper than London, with 7-11 per cent rental returns on built properties at present. The ability to purchase freehold was first offered in 2002; the youth of the market means that large numbers of ex-pat professionals are still competing for a limited number of rental properties, while most new developments are still under construction.

Dubai's property sells for less than £250 per square foot, compared to £500 per square foot or more in most global centers. Freehold off-plan purchases are seeing an average of 30 per cent price rises between release and completion. Dubai also has projected population growth of 2m over the next 3 years - in a city with less than 1m today. This population growth is the fastest in the world, with 24 per cent growth in 2004. Economically, Dubai is the economic success of the United Arab Emirates (UAE) with a $69bn gross national product that is growing by an average of 7.5 per cent per year. Property developments of staggering proportions such as ‘The Palm’ (see our website for examples) have proven popular with celebrities including David Beckham. Consisting of two man-made islands that will house numerous hotels and several thousand residential units, developments such as the Palm have made Dubai a fashionable location for high net worth individuals to both live and work, and as a secure investment destination for other investors.

An important part of this success has been the lack of taxes. Dubai has no taxes of any kind on onshore or offshore activities. It is not just a 'tax haven', but a country entirely without tax, or indeed, a tax department.

Dubai's features as an investment destination include no filing of accounts, no taxation information, no exchange agreements with other countries, no public record of directors and shareholders, flexible and confidential banking geared to the requirements of high net worth international investors, and legislation which protects the confidentiality of such investors.

In May 2002, Dubai's rulers decreed that foreigners would be legally entitled to own freehold property, and that purchasers would receive a free resident's visa.

This measure is part of a planned shift from an economy employing overseas workers on short contracts, to a working culture attracting and retaining key workers.

Currently, the most significant level of population growth is in the highest income group, but 85 per cent of workers only come for a year to work on a single project, while a smaller proportion stay on longer. The government has hatched an ambitious plan to build a centre focused on private banking, insurance and capital markets. The aim is to develop this potential by building holiday homes as well as the growing number of top hotels.

Political upheaval in nearby countries has not prevented billions being pumped into offices, schemes, and hotels in Dubai, which has traditionally been a neutral territory with an international reputation. Because of Dubai's long anglophile history as a British protectorate, the British are still strongly represented in the upper echelons of government and policy formation, and even the army.

The economic planning has certainly paid off, as a combination of booming oil prices, low interest rates, and robust confidence in the region has delivered amazing growth in Dubai.

Strong world growth, a soft dollar, project finance and a region awash with liquidity are key driving forces.

Dubai has a tiny indigenous population of only 200,000 but is one of the world's fastest growing cities, and in a few years intends to complete two of the world's biggest shopping malls and the biggest residential tower - the Burj Dubai, half a kilometer high. The city currently attracts 6m tourists per year.

The Property Market

The Dubai market is fast, very fast. We’ve seen the cost of some properties rising by 10 per cent in a week when they stagger the release of developments. Since September 2003, there has been a 40 per cent rise. If demand increases, which it will, we are looking at a further 40 per cent increase in the next six months.

We have a genuine belief that Dubai will be on a par with the likes of Singapore, Hong Kong, New York and London – and predicts that properties bought now will achieve a good return.

Over the past year we have seen several examples of properties increasing in price between 40 and 100 per cent before completion.

The re-sale market is extremely buoyant and saturation is unlikely in the market. As currently analyzed, projections suggest that demand continues to outstrip supply. Rental demand is reliable because of the highly mobile population, similar to that of London.

We do warn you to wary if you do choose to go elsewhere to purchase property in Dubai. Often the well-located properties are bought by larger investors on the day of release which are then often resold at significant premiums. Some agents with limited coverage in Dubai will suggest that booming construction will lead to oversupply.

We do not believe this to be the case, as the government has limited the land released for development.

History of Dubai – what created this unique property Market?

Dubai has always been a city built on free trade. As early as 1901, Dubai was established as a tariff-free port, even though its population was very small - 20,000 by the Second World War.

Real economic development began in the 1950s when the creek was dredged and the airport and first hotels were built. In the 1960s a construction boom bumped up the population by another 100,000; development then soared off in the 1970s with the introduction of high oil prices. In 1972, Sheik Rashid bin Saeed Al Maktoum, the father of the current ruler, Crown Prince Sheikh Mohammed bin Rashid Al Maktoum, decided to build a huge new port at Jebel Ali. The initial phase was completed in 1972 and at today's figures, represented a £9bn investment. This was considered ill advised at the time! The Dubai International Trade Centre followed shortly after.

It was only in the 1990s, after oil prices were driven higher by the Gulf war, that Dubai greatly expanded its status as a regional trading hub. Since then, the success of the original Jebel Ali free zone has been used as a model for subsequent ambitious developments - namely a cluster of free zone cities - Dubai Internet City, Dubai Media City, and Dubai Maritime City being the most significant.

On top of these, lavish tourist and retail developments have ensued; the most famous example being the seven-star Burj Al Arab hotel, the tallest freestanding hotel in the world. The mega projects of the Dubai International Finance Centre, Dubai Festival City, and a host of others are also on the commercial drawing board.

The first swathe of recent residential developments - most of which remain under various stages of construction - were largely funded by the government.

These projects recreated Dubai’s sky-line in a matter of years. Projects such as Dubai Marina started in the "new Dubai" - envisaged as an extension of the original city.

More recently, the famous developments of The Palm and World have begun construction.

The catalyst for this boom was the creation of freehold property rights for foreigners. Since May 2002, private developers have jumped on the bandwagon and government-backed developers have rolled out a quick succession of major residential projects to feed the growing demand.

So far, these new developments have concentrated on uptown, "New Dubai", stretching from the Jebel Ali free zone to Dubai Internet City, and increasingly, back into the desert hinterland. New developments are being launched further and further from the centre of the New Dubai - the area from Palm Island, through Dubai Marina, to Emirate Hills.

When we organize your viewing trip, you will experience first hand the feeling of transformation in progress. It is a city that is one step ahead of other oil rich countries. There's a real thirst for social work, health, education, and an extraordinary thirst for luxury. Dubai has a focus on sustainability and aesthetics, and an almost unbelievable pool of resources available in order to achieve these goals. Each and every new development is on the most imaginative and grandiose scale that can be imagined.

Dubai is poised over the next ten years to become the newest global economic hub.

A persistent rumor suggests that Dubai envisages a bid to host the 2016 Olympics. Any bid would be a serious contender. For Dubai, money is no object.

What will your money buy?

Buyers are offered a tremendous amount from which to choose. Ninety per cent of properties are still purchased off-plan which allows investors to buy on a very attractive interest free installment basis for around the £100,000 mark, you will be able to obtain a 1,200sq ft fully furnished property with parking. With potential capital growth of 40 per cent in the next two years, Jumeirah Beach could be a good investment. For a similar price we also recommend one-bedroom luxury apartments at the Dubai Marina or at the Jumeirah Lake Towers Community. For those wishing to go up market and unusual, we can organize a trip to the Palm project. The Palm is five years away from completion, so that's five years of silly returns.

Already, the top end of the market is changing hands at London prices. A two bedroom apartment on the Golden Mile is now worth about £750,000. Building costs on the Marinascape luxury apartments launched in July are up 20 per cent since conceptualization.

The risks of investing in Dubai

In Dubai, such breathless construction seems to indicate a risk of oversupply. Few people express a single worry about swamping the city with unoccupied and un-saleable property. Some argue that Dubai is building to meet demand. Other reports suggest that Dubai has an "if you build it, they will come" mentality.

The rulers of Dubai believe that high quality, affordable homes will attract people from outside the Emirates, from the region generally, and from the Indian subcontinent.

They are providing world-class health, education, entertainment, residences and facilities, and a red-tape-free, not to mention tax-free, business environment to attempt this.

Tourism is another potential cause of demand. Dubai plans to increase visitor numbers from 5m to 15m by 2010.

However, Dubai should not be a destination for the investor wanting to get rich quick.

Any risk of over-supply is compounded by the opacity of the housing market, due to the very lack of regulation that is luring businesses.

Some still believe Gulf industry requires better transparency and more regulation of investment if it is to be the missing Middle Eastern link in the chain of international markets. The International Monetary Fund (IMF) has been pressing Dubai to impose some kind of property tax - Dubai has so far resisted.

Dubai has embraced the American capitalist ethos with gusto, but the move to open land up to foreigners, who hugely outnumber the locals (now accounting for 80 percent of the population), has displeased some members of the six Sheikhdoms that make up the UAE.

Abu Dhabi, number five in the organization of petroleum exporting counties (OPEC) showed its displeasure recently by withholding its annual direct grant aid.

Another caveat: the right of foreigners to buy freehold property has never been ratified at a federal level by the United Arab Emirates, of which Dubai is a member.

However, the widespread belief that this process is merely a formality has resulted in selling on a grand scale anyway, with the more adventurous banks rushing in to provide finance. It is expected that the more conservative leaders in Abu Dhabi, the UAE’s dominant emirate, will eventually accede to full legal transfer of property ownership for foreigners. When this happens - possibly later in 2005 - it is thought the market will open up even further to a third trance of investors lured by their safer legal footing in Dubai.

Onlookers are also concerned about the impending hike in US interest rates – linked to the UAE economy though a fixed exchange rate. But local lenders are currently taking a fairly large commission cut on providing mortgages. If rates do rise, they could absorb some of the burden. A moderate increase would be mitigated by a lower mortgage spread – but there is some risk that a higher increase could dampen the market.

However, the majority of investors in the market at this stage are cash-buyers immune to rate hikes.

Another advantage on the side of the Gulf is the rising oil price. While we are now at an unprecedented $50 a barrel, the region will continue to be awash with liquidity, cash and buoyant prices, so higher rates are one aspect of a complex equation.

We also recommend that you should be careful in buying off-plan in Dubai, as many developments have already been sold – especially the more attractive homes with the best views and surroundings. A lot of the new builds are already sold, and speculators and home buyers have moved on to the re-sale scene.

Many people are pushing the less popular houses and apartments at exaggerated prices. We would always recommend a viewing trip and are more than happy to arrange one at discounted prices.

The concept of the freehold offered in Dubai is not as we would know it. It's simply an agreement between the developer and the buyer that the property will be transferred to them and the buyer will have full and enduring ownership – but freehold doesn't convey ownership of the land. There's the crux. We believe the law will go through later this year as planned, which will drop mortgage rates, open up financing and allow the market to really take off.

We believe that rental returns will stay high as the population increases, and the properties in the pipeline will not satisfy demand, despite the vastness of those on the way. Demand should continue to outstrip supply well into 2010.

In summary, 10 Reasons to Buy in Dubai

1. High capital appreciation

2. High rental yields on completed properties

3. No capital gains or income tax. No tax at all for that matter!

4. Still very affordable by international standards

5. Excellent quality of Property

6. Due to become one of the most significant leisure destinations in the world

7. It is the business hub of the Middle East; an increasingly important player on the World stage

8. Extremely safe environment with some of the lowest crime rates in the World

9. Year round sunshine

10. It is a cosmopolitan, global business centre with luxurious facilities and an incredible beach!

By: Property Frontiers