New Year cheer for Dubai house prices

It's worth looking back over 2004 before trying to project forward into 2005. During 2004 Dubai house price gained ground, particularly in the second half of the year. Indeed, this was the first time that many developments saw substantial premiums on top of their original selling prices.

However, also from about mid-year the rental market began to take off in Dubai. Ask anyone who has been looking for a place to rent since then, and you will get the same mournful answer: very little choice and a 20-25% hike in rents.

Now here we are talking about property that actually exists, and not property being bought off-plan, although the former obviously influences the latter in terms of re-sale pricing. But there are some anomalies emerging that are good news for buyers who are quick to react.

Take The Springs villas, for example. In the summer rentals were much lower and yet selling prices today have not shifted a great deal. That means that the yield on this type of property has gone up from six to maybe 7.5% since the summer.

At present access to The Springs is a problem with the interchange from the Sheikh Zayed highway often blocked morning and night. However, those with sharp eyes will have noticed that a second interchange is beginning to emerge from the ground, as this planning blunder has not gone unnoticed in the highest circles.

What applies to The Springs, Meadows and Emirates Hills also applies to the Dubai Marina whose access is impaired by the same interchange. Once this error is corrected, the properties in these areas will receive a major boost and benefit from one of the most central locations in the New Dubai and a very nicely planned community.

Underpinning the whole pricing structure is another factor: a rapidly rising population. Some unofficial figures from credible sources suggest that the population of the UAE will have grown by 400,000 in 2004, or by almost 10%.

Not all of these people are potential home-buyers and they will not all want to rent superior properties. But if only 25% of them choose to do so then that is still considerably more than the number that can be accommodated in the homes completed during 2004.

So we have a real shortage of accommodation in Dubai at this moment in time. Hence the rental increases. This factor alone should keep house prices on an upward march during 2005. For the supply of new property is failing to keep up with demand in Dubai.

How long will this continue? When will supply catch up with demand? It is impossible to predict that with any certainty. But we do know that high-rise construction takes a lot longer than low-rise construction, and that the focus is on high-rise construction. Thus it is physically impossible for supply to exceed demand for at least another couple of years.

So it is not hard to make a case for Dubai house prices to continue to rise in 2005, perhaps at a faster pace than in 2004, and very difficult to be pessimistic about the outlook.