Is Gulf property in bubble trouble? (page 4 of 4)

At this lower end of the market, population density is far more readily apparent, with families enjoying the swimming pools and recreation facilities in force at the weekends.

Stabilising yields

This is what the developers want to see, and many are encouraged by the increasing availability of residential mortgages. If property is being financed by mortgages, rather than by speculator cash, then the logic is that rental yields will stabilize.

The more they delay the sale of properties until they're actually ready for buyers to move in, the smaller the window for speculators to exploit. That's not to say that prices aren't still being forced upwards. Two years ago a two-bedroom townhouse at The Springs near The Greens would have cost $135,000. Now the price is more like $190,000.

As you would expect, most real estate agents in the UAE are inclined to talk the market up, at least in public. But some industry specialists are concerned by the gulf between offplan paper trading and the delivery of real homes.

Christopher Steele is the head of Middle East for Hamptons International and is based in Muscat. His firm deals mainly in property in Bahrain and Oman, and he is wary of the Dubai market because he anticipates "a major price correction in the next 12-18 months."

Pointing out that developers expect to complete the construction of 8,000 new homes in Dubai within the next nine months, he expects that developers will soon need to reassess the fundamental worth of properties in the mid- to low-price segments of the market.

"The volume of new developments that have been launched in the past few months has largely saturated the market of offplan buyers," he explains. "When these new units reach completion, the developers will need users to fill them. This is a real market scenario, and we feel that the supply and demand balance is out of proportion now."

Arif Naqvi, chief executive of Dubai-based private equity firm Abraaj Capital, takes a different view of the numbers. Calculating that the GCC states have a population of about 30 million, and around 60 percent of those are resident expatriates, he says that "even if only five percent of those expatriates are able to buy property, that will translate into a huge pent-up demand across the region."

"When you look specifically at Dubai and consider that Emaar has only released 5,000 units so far, I think you can feel confident that that demand for real estate will be strong for some time to come," Naqvi continues.

"The danger in the market is irresponsibility due to a lack of regulation. Regulators must develop frameworks that are more benign than the ones found in the Gulf now, but that also control the rapid pace of change."

While Dubai encourages a construction boom to meet the needs of an expanding population, other states are taking a more cautious approach. Bahrain was first to the post when it issued a decree permitting foreigners to own land back in 2001, but estate agents report that the bulk of demand has come from expatriates already living in the kingdom and from Saudis across the King Fahd Causeway.

On the back of its enormous reserves of natural gas, Qatar is also preparing for a bright future, and 150 towers will rise above Doha's West Bay area by the end of 2007. Properties are quickly snapped up in Qatar as they are in Dubai - 456 apartments in 24 hours in the case of The Pearl this October - but freehold ownership by foreigners is still restricted to a select few projects including The Pearl, West Bay Lagoon and Al Khor Resorts.

When it comes to future predictions for Dubai, few are willing to hazard a guess as to when the good times will stop rolling. As one Dubai banker wryly comments: "I've been watching the growth of the real estate market for the past five years or so and have always felt it to be a bubble. The problem is that I've now realized that I've missed the boat. You could say we're in a bubble now; but, if so, it seems to be made of pretty resilient rubber."