Will the Burj Dubai mark the top of the Dubai property boom?

The twin towers in Kuala Lumpur was completed just in time for the Asian Financial crisis in 1998. The World Trade Centre in New York opened just before the 1973-4 Wall Street crash. London's Canary Wharf tower opened in 1990 just at the start of the worst post-war recession in the UK.

So could the news that the 512m high Burj Dubai has now topped the 508m Taipei 101 as the world's tallest tower be an indicator that Dubai now faces tougher times?

Well people said the same thing in 1999 when the Emirates Towers became the tallest building in the Middle East. And while it is true that oil prices at $10 a barrel that year slowed Dubai's development the rebound into the new millennium was spectacular by any standards.

Deja vu?

Could we experience the same again with Emaar's Burj Dubai? With oil prices hovering around $75 a barrel that does not seem likely. Demand for commercial and residential property in Dubai is enormous and rents have surged upwards again this year.

It seems that property just cannot be physically delivered fast enough to meet demand. Of course, at some stage there will be too much supply, rents will fall and property development activity will subside.

But predicting exactly when that might happen is a fool's errand, and project delays are getting longer, not shorter. Nakheel has announced that infrastructure work on the second Palm Jebel Ali will not now be completed until 2012.

Besides booms tend to last longer than people expect. Perhaps that is just because projects get delayed, or more likely the main driver is a snowball of confidence that takes as long to slow down as it took to get going.

Boom to continue

Either way unless something goes drastically wrong in the global economy and a recession hits the oil price for six, then the Dubai real estate boom will continue for some time.

But Dubai's new Law No 8 establishing compulsory escrow accounts for new developments is likely to dissuade many smaller project promoters, and marks a new era for Dubai real estate.

However, this is an orderly winding down of a construction boom and not a collapse. Dubai managed that in 1999 and the government's capacity as a developer should not be underestimated.

When it is completed next year the Burj Dubai will be a symbol of Dubai's achievement in quadrupling local GDP in the past decade. Then the global competition to build higher will take a new turn, and Australian James Packer has just announced plans to build a super-tall building in Las Vegas.

But the Burj Dubai's most likely competitor will probably be closer to home. Nakheel's proposed Al Burj tower is expected to be significantly higher!

See also:
Video: Worlds tallest tower
New escrow account law likely to dampen new property launches