Undoubtedly, the main engine of the boom in the Dubai real estate market was the publication in 2002 by Sheikh Mohammed of a decree according to which non-residents of the UAE were allowed to purchase housing in Dubai. "For the first time in this country, the sheikh's decree introduced the concept of freehold – that is, full, unconditional ownership," says Zhanna Huseyn, head of the foreign real estate department at Prestige Property. – Foreigners have the opportunity to acquire ownership of real estate in projects that were started before the adoption of this law, as well as in numerous complexes that began to be built later. The hype spread quickly – Europeans, Americans, and then Russians began to actively explore this market and invest in Dubai real estate. For example, people who made a purchase at the very start of The Palm Jumeirah project currently have an income of 300-400%." Since then, quite a lot of time has passed, the growth of the market has slowed down, but Dubai still remains one of the most interesting places for private real estate investments today.
Note that in no other country in the world does the real estate market depend to such an extent on the government, which in fact develops and implements a development program. Currently, this program is being carried out with brilliance and has an undoubted prospect. But although it is not customary to cut a chicken laying golden eggs, it should be noted that in conditions of an absolute monarchy there is a risk that in certain cases authoritarian government decisions may not benefit the market.
After oil
The development of the real estate market is one of the important elements of the diversification of Dubai's economy, which until recently was completely dependent on the country's oil reserves, which will inevitably run out someday. The ruler of Dubai has relied on the development of business and financial markets, as well as on the creation of a world-class tourism industry. A thorough scheme has been built to attract foreign investment to the country, the level of taxation has been reduced to a minimum, and the business infrastructure – banking services - is well developed. Every new business project in a particular area of business means new jobs and new investments. In this context, the development of the real estate market and the construction industry is simply necessary.
But in Dubai, they do not just build, but perceive the real estate market as another engine of the economy. Favorable business conditions attract large investors who build and sell real estate. Private investors, in turn, are attracted by the rapid growth of the market, good rental profits and the absence of taxes.
Of course, the ambition of the projects also plays a role, which is simply amazing. Huge artificial islands have already been built or are being built, the world's largest man-made yacht marina, the world's tallest building Burj Dubai. All these bold, daring initiatives cannot fail to attract attention. In fact, Sheikh Mohammed made a bet on this, rightly judging that such unusual projects cannot remain without the attention of investors.
Here are some more examples of how Dubai is able to surprise. The huge Dubiland complex will harmoniously combine theme parks and large residential complexes. It is in Dubai that the world's largest shopping mall, Dubai Mall, is being created. Dubai's new Business Bay business district will also have no equal in the Middle East. And the new seven-star hotel, the construction of which was announced recently, will certainly be able to repeat the success of Burj al Arab.
Total boom
According to forecasts, between 170,000 and 240,000 residential real estate units will be commissioned by the end of the decade. For such a large amount of housing to be in demand, the population must grow at the same rapid pace. This is exactly what is happening – due to the high pace of Dubai's development, the emirate's population is increasing by about 7% annually. Today it is 1.35 million people, but by 2010 it may approach 2 million. Thus, the balance of supply and demand is unlikely to be achieved in the near future, and demand will remain unsatisfied.
Such statistics easily explain why the long-term rental market in Dubai is even more dynamic than the housing purchase and sale market. For several years until 2006, rental rates increased by 20% annually, due to the huge flow of professionals coming to Dubai to work from all over the world. To prevent the cost of rent from becoming too high, Sheikh Mohammed by his decree imposed a limit on annual rent increases, but even after that, Dubai remains an attractive destination for renting out housing. Do not forget that in addition to long–term rentals in Dubai, one of the world's tourism centers, short-term rentals also bring good returns - more troublesome, but also more profitable.
Analysts make forecasts
Under normal, natural circumstances, any boom comes to an end, and Dubai is no exception. The slowdown in the growth rate of real estate has already occurred – we are no longer talking about the fact that the capital invested in real estate can double in a year. But pessimistic forecasts are also not justified, but literally from the moment Dubai appeared on the international real estate market, skeptics began to predict an imminent market decline, talking about the speculative nature of demand.
Indeed, "pure" investors, who do not care about anything other than capital gains, accounted for and still account for a significant proportion of buyers. But not many of them are in a hurry to lock in profits and exit the market – and this is a good indicator of investors' faith in the further growth of the market. This belief is based on the fact that not only the construction industry is developing in Dubai, but the complex economic growth covers all spheres, from tourism to trade and financial services. Therefore, the future of the real estate market should be primarily linked to how actively the government of Dubai will implement its program of economic development and investment attraction.
Most experts agree that the real estate market will maintain its current upward trend at least until the end of 2008, when a phase of relative stability is expected to occur. Well, then the real estate industry is waiting for the moment of truth – at the end of the decade, the volume of new housing will become so large that possible scenarios are possible.
Many are confident in the continued activity and high efficiency of the sector due to high demand. "There is a Dubai development program that should be implemented by 2015," says Zhanna Huseyn. – The program aims to make the Emirate one of the most attractive destinations in the world, both for tourists and investors. Market stagnation is possible, but not now. This may happen by 2012-2013, when the program will come to an end. In the meantime, there is an opportunity for the implementation of large projects, prices are rising."
A positive forecast is also given by those experts who rely in their reasoning on forecasts related to population growth in the coming years. A comparison of the expected housing commissioning and the likely population growth suggests that the demand for housing will not be saturated for quite a long time.
At the same time, one should be wary of overly optimistic forecasts. It is obvious that a significant part of the demand is formed by middle and lower-level specialists who are not potential buyers, but only tenants of housing. And in this sense, the restriction on rent increases, which is beneficial for tenants, can play its negative role as a barrier limiting the purchase and sale market.
The growth of the market in different segments will certainly be heterogeneous – all projects cannot be equally successful and profitable. The prospects for the highest price segment look optimistic – attracting wealthy people as investors and even residents of Dubai is part of a nationwide strategy. But you can't overdo it with the number of properties whose value is measured in millions of dollars.
Inexpensive mass housing is particularly scarce in Dubai at the moment. However, the demand from people moving to the emirate for a new job is directed specifically at this segment of the market. But the real estate of the middle price category looks the most vulnerable – the demand for it cannot be as high as for inexpensive apartments, and its cost is already quite high. In the near future, this segment may not become too attractive for investors.
In any case, the uniqueness of the situation in Dubai lies in the fact that the emirate largely depends on the will of one person – the absolute monarch. The future of the real estate market, among other things, depends on how delicately he manages to steer the Dubai economy in the right direction, without violating market principles and laws.
