So is UAE real estate a good buy after all?

The Palm developers descended on London and the UK's horse racing fraternity last week, and made quite an impression. Several UK commentators picked up on the fact that the re-sale of property on the original Palm Jumeirah is said to be commanding a premium of 40%.

So does this mean that anyone with an eye for a good investment should be sizing up a villa or apartment in Dubai? The answer, as always with investments, is that it depends on who you are and what your objectives might be.

Local Dubai property agents warn would-be buyers against exaggerated expectations of capital gains. They argue that to buy to replace rental payments over a five to 10 year period is a rational thing to do, but to buy expecting prices to leap 25% in a year or two is not.

Certainly as a general rule the agents probably have a point. If you put down a deposit on an apartment block scheduled for completion in two years' time along with 50-60 other similar towers you will be pretty lucky to see your money back.

Supply and demand not being equal, prices could fall, although the sheer volume of free zone projects in Dubai suggests that a surge in expatriate numbers is just around the corner. However, whether the surge in population and the release of accommodation happens at the same time remains to be seen.

On the other hand, the situation at The Palm Jumeirah must bode well for other locations with a claim to uniqueness, and indeed those within a short distance of The Palm itself. Perhaps the owners of The Meadows villas will find themselves with a rising asset, for example.

The real killer about Dubai real estate is that it has been flogged in record time at prices well below comparable rates in other wealthy cities. The interesting thing to watch now is whether market forces can quickly adjust real estate prices to something more in line with the global standard.

Work back from the present rental yield and prices could almost double in Dubai without being out of synch with the rest of the world. The alternative is for this growing city to see its rental prices slump during an economic boom so that real estate prices reflect rentals.

Perhaps the smart money is on a balance between the two, but that still leaves a good case for investment in Dubai real estate. There are two more factors to consider, which are very much inter-related, registration of titles and mortgages.

One of the reasons why Dubai real estate is so cheap is that the position with regard to the registration of title is not entirely clear, although it should be this autumn. Once this happens other banks will start to offer mortgages - only Emaar Properties' Amlak subsidiary does so at present - and this will bring down the cost of funds and push up real estate prices.

Thus provided you are prepared to risk the legal position, and obey the old rule about 'location, location', then real estate in Dubai might prove to be a much better investment than most people think at the moment.