How will Dubai freehold property prices move?

This is a pretty difficult question to answer. For one thing the Dubai freehold property market for nationals and expatriates is only just over a year old and the first residents have barely closed the door behind them.

Yet advertisements 'Freehold Meadows villa for re-sale', 'The Greens apartment freehold' have just started to appear in the columns of Gulf News. Somebody has clearly decided to cash out, perhaps moving to another country or wanting the money to start a business.

So the Dubai freehold property market is here. At the moment most sellers appear to be asking for what they paid. But given the huge demand when the Meadows villas went on sale a little over a year ago - with literally hundreds queuing to buy - this might appear a little disappointing.

What happened to all those who could not fight their way into the Emirates Tower's ballroom to buy? The obvious answer is that they bought one of the many subsequent offerings at Arabian Ranches or Jumeirah Islands. So does that mean the market is flooded with property?

Not necessarily. One unknown quantity is how many Meadows, and other Dubai villas have been bought by landlords for rentals. Certainly I saw many in the ballroom on M-Day who were clearly buying for rent, and thus presumably are not remotely interested in re-sale.

However, it may be that the extent of present residential accommodation construction in Dubai is going to frighten off the would-be re-sale buyers who will be hoping to buy later at a cheaper price.

One property developer told AME Info that Dubai has presently around 38,000 upper middle accommodation units under construction compared with a normal annual uptake of 7-8,000 a year. However, given the growth prospects of the City and its upcoming free zone projects this may not be as many excess apartments and villas as it appears to suggest.

The key is the rental market. If Dubai rentals fall this autumn, as some expect with the arrival of freehold units on to the market, then this will probably drag the prices of villas down a little.

On the other hand, the continuation of the present high yields on Dubai villas and apartments could mean something else, that prices are too low.

Why should an investment in a villa pay you 9% a year while bank accounts yield less than 1%? The villa ought to rise in value to depress the rental return to a level more consistent with the cost of funds.

Investors in Dubai property should note that this fundamental law of economics has been in operation in the property markets of the US, UK and many other real estate markets over the past five years. There is no reason why what has happened in Mumbai should not happen in Dubai.

Thus while freehold re-sale might start with a whimper in Dubai, there is every reason to expect a roaring property boom in the not too distant future, and would-be buyers should be more worried about missing out than early price hiccups.

For Dubai real estate is cheap relative to rentals and the cost of funds and is therefore a good buy. And in the context of a lively real estate market there still will not be enough property to go around.