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There are very few with even a passing interest in property abroad who won’t have read something about Dubai and its unique property market by now. It has only been open to foreign investors since 2003 and freehold ownership is not due to become an option until later this year. Dubai, which is the second largest of seven Emirates forming the United Arab Emirates (UAE), has a population of 1.67 million, 80% of which are ex-patriates. As Arab states go, and even by UAE standards, Dubai is probably as liberal, stable and Westernised as they come. There are no problems for women whatever they choose to wear, religious tolerance is the order of the day and drinking of alcohol is not prohibited, although public drunkenness is seriously frowned upon so it may not be the ideal venue for your upcoming stag party.
Judging Dubai’s fledgling property market by the standards of anything else on the planet is a little pointless, it simply isn’t like anywhere else on earth. Parallels may occasionally be drawn with Las Vegas, but the most similarity you’ll likely find is the planned nature of the cities. Dubai is certainly a very contrived city if you look at it in that way, don’t expect to find too much organic and disorganised property growth here, everything is being planned to a tee. It also has a penchant for taking the best and most celebrated design and architectural features of other countries and cultures to use in new and unusual ways. It is possibly not much of an attraction for architectural purists but still quite intriguing as a design ethos.
In terms of financial attractions for both developers and investors they don’t get any stronger than Dubai, tax-free status is as good as it gets. As Ray Norton of Larionovo says, “the tax situation here tends to be a fairly short conversation, there are zero taxes on pretty much everything.” It is easy to gloss over the effect that this has on attracting incoming economic activity until you take a quick look around Europe and see the effect that dropping corporate tax rates to 15% has for a country. This will give you some hint of the attraction to Dubai. Kofi Annan recently went so far as to label Dubai ‘an economic miracle’ so the Emirate obviously has friends in high places. It is essentially a tax-free zone in its entirety and this fact has not been lost on the corporations of the world. Of course an Irish investor will still be taxed in Ireland on all their overseas income, but you can’t blame Dubai for this.
One of the main drags on this market to date has been the inherent difficulty in arranging mortgage finance. This is rapidly changing with the impending introduction of freehold laws and the chances are that freer availability of mortgaging will continue to drive price inflation in the region for the foreseeable future as will the nature of some of the more mind-boggling schemes being presented to investors.
One of the things which most worries many people about the entirety of the United Arab Emirates is not the fact that there is any intrinsic political instability, there has been no history of this in the region since transfer of power from the British in 1971, or even before that time. It is really more a question of some of the entities surrounding the Emirates not having a similar reputation. It can be difficult to convince those unfamiliar with the area how little this has affected it up to this point. There is obviously nothing to say that some undesirable won’t decide to focus the region because of its liberal Westernised policies or rich oil reserves, based mostly in the neighbouring Emirate of Abu Dhabi, but advocates claim you may very well be in more danger located anywhere near Shannon and thus tend to ignore this possibility.
Another argument against investment here is the lack of democratic political structures. The Maktoum family have been very benevolent rulers but not everyone in Dubai agrees with their vision for the future. The argument for a focussed single ruling entity can be very visibly seen in the ease and speed with which huge new projects can be vetted and actioned, this simply doesn’t happen in the democratic world. The flip side of this coin becomes more obvious if you don’t agree with the actions taken by this unchallengeable authority. Not everyone is comfortable with such irrevocable powers but many country’s experiences with democracy and its ability to cater for the common good haven’t exactly been riveting so I guess you could argue either way.
Spiralling rents for homes in Dubai is obviously seen as a boon for property investors but it should not yet be viewed as the norm for the market as very little of the planned property in the Emirate has actually been built yet. As it stands, low-paid workers are already priced out of the local rental market, where rates increased by around 40% in 2005. The rate increases were so large that the governing Maktoum family intervened to cap rising rental rates. This highlights something which may become more of a problem with time. While Dubai is witnessing a construction boom, the trend is almost completely toward luxury apartments and villas, leaving little accommodation for unskilled and semi-skilled workers, mainly from India, Pakistan and the Philippines. Even if the Emirate succeeds in its attempts to make this the Mecca for all tourist related traffic in this region it will be necessary to accommodate such workers but there don’t currently seem to be any incentives to supply product for this significant market sector.
Traffic is also currently a huge problem in the city with traffic jams sprouting at just a minute’s notice, and this is before most of the property has even been built. You would shiver to think what levels of traffic will be present when all the building is completed. The lack of any reasonable public transport system doesn’t help much but the plans to build a monorail system to alleviate the problem will surely bring smiles to the faces of all Simpsons fans.
Unlike most world cities where property is built to service a growing need, Dubai is entirely the reverse, which is what makes it so hard to pin down. The long term plans laid out for the city by the all-powerful, and highly revered, Maktoum family drive property development. This in turn invites investors to buy into a market which has basically been engineered from nothing. It is this flagrant invitation to investors, normally a very bad sign of a market, which bothers most people about Dubai. Because of the unique way in which the Emirate has chosen to populate its territory it is difficult to see how else it can find buyers for the vast amounts of property it intends to build. Ray Norton of Larionovo is quick to point out, however, that there are more than 100,000 expats per quarter applying for visas to enter the country pushing demand for property here along with the huge investor rush into the market. It still has to be acknowledged that the very new and unique nature of this market has led to near mass hysteria on the release of new projects with some selling out in hours.