More thoughts on investing in Dubai property

Skeptics hate to be proved wrong. But the doubters about Dubai property are already looking a bit silly. Nowhere is there any evidence of discounting. Prices are heading skyward in all locations, though some are doing better than others.

The Palm, Jumeirah, is the star performer. Top-of-the-range Signature Villas have doubled in price, although that is still not much good if you want a house to live in as they will not be completed for at least two years.

Welcome to a reality of the Dubai property market. Most real estate is under construction, and increasingly subject to delay. That means there is a shortage of completed property. Actually for many developments there is a shortage of property, period.

It was amazing to hear that The Green Community has sold all its luxury villas and 80 per cent of standard villas. This is a rather pleasant environmentally-friendly development, but it is 50km from the Dubai airport and all property is for sale on 90-year leases and not freehold.

The important thing to note is that The Green Community offers homes you can move into now, and the rest will be completed shortly. Homes that you can buy are in short supply. No wonder there is upward pressure on prices.

At Emirates Lakes - a rental community owned by Emaar Properties - there is a waiting list of more than 300 at the moment. Perhaps this is not so surprising. Dubai is probably the fastest growing city in the world and that is attracting many new residents.

So is Dubai a good buy? It has to be really. Property yields of 8-10% are at levels to die for internationally. That means it is expensive to rent, and therefore even more attractive to buy.

The Dubai real estate market is also changing by the day. More finance options are one phenomenon. Most recently Emirates Bank has announced that it will turn its Middle East Bank into an Islamic home finance subsidiary.

Competition among lenders will bring the cost of borrowing down - still a bit high at 6.5% for a floating rate local mortgage - and again put upward pressure on house prices.

The resolution of the legal side to freehold ownership for foreigners is also likely within a year or so. Once titles can be registered at the Dubai Lands Department, whose electronic land registry in one of the finest in the world, then another dampener to confidence, and hence property prices, will be removed.

However, as demand grows for property the actual, physical supply on the ground is likely to lag behind. Who knows what the prices of Signature Villas will be on The Palm when the residents actually move in? But in the meantime they still have to live somewhere else keeping the pressure on local property supply.

For it really is an illusion to think the supply of property exceeds demand in Dubai. An understandable one if you look at all the supply being built. Yet the truth is that the supply is not enough, and probably won't be enough in the near future either and that will mean local house prices will continue to go up.

If you don't buy today, then be prepared to pay a lot more when you do.