With property prices in Dubai at an all time high, many investors are concerned that prices have either peaked, or are so high that they will allow little room for further capital growth.
It is true that the Dubai property market has witnessed considerable growth and speculation since 2002. However, many industry experts believe that this growth trend is likely to continue for several reasons.
Firstly, supply and demand. The demand for property in Dubai exceeds the current supply by a considerable margin, which pushes up prices. Many developments which were scheduled for completion in 2007 and 2008 have been delayed, which compounds the pressure on existing housing.
Inflation is also a key driver. Prices are rising in general across the emirate, and property is no exception. Construction costs are rocketing, land prices are appreciating, and salaries are escalating. All these issues have a direct effect on off-plan property prices, and as a result increase the asking price of finished developments.
Confidence in the market - which has been bullish for some time - is also rising. Major projects are starting to come on stream and these visible, tangible developments are boosting market buoyancy. Furthermore, introduction of market regulations such as the Escrow law has reassured the external investment market, attracting more global players. Also, financial rules have been relaxed, meaning mortgages are easier to obtain. Until recently, there were only a handful of mortgage companies in the country, and the sector was dominated by local banks. Today, international financial institutions are lining up to take advantage of the lucrative business opportunities available in the region. This opens up the housing market up to a whole new audience, adding further pressure to the supply chain.
New projects are being released on a weekly basis, creating an additional buzz in an already excitable market. The UAE is widely regarded as the best place to invest in the Middle East, and Brand Dubai continues apace, generating huge interest in the emirate from across the globe.
These reasons alone are more than sufficient to allow the prediction of further price increases. But when you look at Dubai prices in a global context, it is clear that there is still plenty of upward room for manoeuvre.
A luxury property in Hong Kong's affluent Peak district commanded US$7,100 per square foot in December 2007, setting a new record price for Asian residential real estate. A comparable "super-prime" property in London's Chelsea Square recently fetched US$6,000 per square foot.
A recent CBRE Hamptons report shows that prime residential property in London costs about US$2,400 per square foot, and in New York commands around US$2,000 per square foot. Tokyo and Hong Kong sit a little behind at US$1,800 and US$1,600 respectively.
So where does Dubai fit in? Currently, the average price of property in Dubai is about US$435 - US$465 per square foot, whilst prime property in Dubai is hovering around the US$820 mark.
Accordingly, even though Dubai is no London, New York or even Hong Kong, there is still tremendous scope for property prices to surge even higher than current levels. As one of the fastest growing regions in the world, which benefits from high liquidity and a booming economy, the Dubai property market is undoubtedly expected to gain further ground in the medium term.
