Dubai property for the sensible investor

The arrival of some big speculators, the like of whom buy up 250 villas in one go, has spooked some potential average investors in Dubai property. However, the investment case for the average buyer who wants to live in Dubai for five to 10 years and then either sell-up or rent-out their property is still very much intact.

The basic reason is that Dubai property remains inexpensive compared to international standards, and that the alternative of renting for five to 10 years is a complete waste of money.

'Why rent when you can own?' was the original Emaar advertising slogan, and this basic argument remains. For even if property prices fell by half over five or 10 years, you would still be better off than renting the same property for that period - because that would give no return whatsoever.

But what if you only plan to stay in Dubai for two to three years? Again if you can obtain 70% finance then it is a no-brainer. Buy on 15-year finance and then either sell or hold on to your investment when you leave.

Now with rentals at present levels you should easily cover your mortgage payments. This means that you have effectively created a savings policy with zero annual contributions in a tax-free country.

The logic that underpins this option for the average investor is unshakeable. The price of villas and apartments would have to double to even begin to undermine this investment case, or rents would have to plunge, or interest rates rocket. None of these scenarios seems likely.

Speculators, of course, are also positioning themselves on the back of this argument. Their downside risk is much higher because they are often taking a short-term and not a long-term view of financing.

For them a downturn in the Dubai property market at the wrong time would mean that instead of funding a 20% deposit on a number of properties, and quickly selling them on, they would have to pay up the 100% which they might not be able to afford or borrow at a time when prices were lower than what they paid.

It is very different for the average buyer taking the long-term view with a 10-15 year mortgage from Amlak Finance, Tamweel or HSBC. Then the ups and downs of the market can be ignored and housing treated as an engine for saving money on rentals and rolling up capital gains.

For capital gains on a property held over a 10-15 year period are almost certain, unless inflation disappears from the global financial system. This again serves the long-term investor well, while short-term speculators can only hope it happens at a time to benefit them.