Real estate market hinges on Dubai World revival

"The most important aspect of the plan, which will result in the much needed unlocking of liquidity, will be the settlement of contractor and other creditor dues along with repayment of bank loans. The payments to creditors will provide businesses with the lifeline to focus on executing projects and improve economic activity, which is critical to create and maintain job stability in the country," the research states.

It has been predicted that the city's growth will return to the traditional strengths of tourism, trade and finance, and this will result in a more sustainable future. "The demand for real estate will be led by improvement in traditional economic activity instead of construction feeding demand for other sectors," Investment Boutique reports.

Dubai economy to contract

Although the economy of Dubai is expected to contract by 1.2% in 2010, the report has states that it will grow by 3.1% in 2011 and 3.8% in 2012. Population growth is set to play a big part in the future of the city's real estate sector, with the current population standing at a predicted 1.77 million, according to government sources.

However some doubts remain over the accuracy of this figure: "This figure has been derived from an exponential model and may not be reflective of the current economic climate which has adversely affected opportunities, resulting in redundancies, loss of incomes and a reduction in the expatriate population," states the report.

Due to differing views over population figures in Dubai, Investment Boutique put together its own analysis of the situation. It predicts that the Emirati population in Dubai will grow by 7.6% consecutively from 2010 to 2012, while the expatriate population will recover from the decrease it saw in 2009 and grow from 2011.

Based on these forecasts, the report has predicted the demand for housing units in Dubai to be 235,173 in 2010, rising to 243,993 in 2011 and 254,518 in 2012.

Dubai Land values in two tier split

Land values in Dubai have split up into two tiers, according to the report, with plots in non-freehold areas subject to different market conditions than those in freehold areas. "A two-tier market does seem to exist when it comes to purchasing land in Dubai. The first tier relates to land only available for purchase by UAE or GCC citizens whilst the second tier relates to land also capable of being purchased outright by foreigners in distinct foreign ownership zones."

Land values are influenced heavily by other factors, as is shown in the report: "The value of residential land plots will only begin to increase again when the prices of residential apartments / villas increase, provided that any increases in the end / built form product are not completely absorbed by similar increases in construction cost and greedy development returns."

It was recently announced by the Dubai government that land plots previously granted to Emiratis for commercial and industrial use can now be owned on a full freehold basis, subject to certain requirements. This decree will allow a raft of property in prime areas around Dubai to be bought and sold in a free market, when previously this was not possible.

However the report is cautious in its conclusion for the land sector: "All things being equal, and assuming the Non-Freehold market does not become overheated as a result of the latest announcement concerning granted land, Investment Boutique is of the opinion that land values will generally rise and fall with the fortunes of built-form property prices."