(AG Real Estate) Dubai Property Market

dr Željko Popović,

Parsons Brinckerhoff

Abu Dhabi, UAE

popovicz@pbworld.com

The Dubai property market and economy in general show steep, almost phenomenal growth in recent few years. One area witnessing the most significant level of growth at annual rate of 5.6% from 1992 to date is the city's population. Dubai's population is expected to reach 2 million by 2010 and 3.5 million by 2015. It is significant that 82% of the city's population is made up of foreigners, attracted by employment and business opportunities.

The Dubai property market was boosted by law changes in 2002, permitting foreign property ownership and trade. From that time all studies suggest rapid economical growth. The real estate sector contributed around $3.2 billion to Dubai's Gross Domestic Product last year, with gigantic projects just starting. According to Dubai Municipality's data, city perimeter extends by 6.2% a year due to new projects. Such real estate development has contributed 10% of non-oil GDP in recent years. Increased construction activities positively influence other manufacturing and service sectors.

Negative consequences of intensive construction are also widely visible, to mention just few: congestion on Dubai's roads, water and electricity supply problems, and delayed sewage network development. Driving during rush hours results in lots of stress and millions of lost hours. Personal cars are a requirement for living because public transportation is practically unavailable.

Demand for flats and office space generated inflation and resulted in increase of property prices. An average square meter of living area in Dubai currently sells for $3,200 to $3,500, a 60-70% increase in two years. House prices in Dubai are likely to rise by a further 15% next year. House and office rents have also been increased by more than 70%, and in some cases on prime locations by more than 100%, compared to prices from two years ago.

It is estimated that completion of large on-going projects will sharply increase the supply and prevent further price increases on the local property market. Some 84,000 new housing units will be handed over to clients in next 3 years. Analysts predict that such a supply should satisfy, and even outstrip current demand. There are also fears that immigration inflow, now positive factor to property demand, may slow down due to increased property prices. Although Dubai is not yet up there with top European and American cities when it comes to rental and property prices, it is not too far away. Lately, there are also shy discussions appearing in local media on possible bubble effect, caused by mechanical demand increase due to immigration and powerful selling campaign.

The Dubai government announced attempts to strengthen long-term perspective for homeowners in overheated property market. There are encouraging announcements that Dubai will be a strong contender for the 2020 Olympic Games, suggesting that property value should increase. State media emphasises past examples, such as: Barcelona (1992), Sidney (2000) and Athens (2004), when property prices were largely boosted by the sport event.

It is still to be seen what trend will prevail in the Dubai property market after extremely successful initial period.