Oil prices and Dubai property

Although oil contributed only 6% of Dubai's GDP last year, the construction boom owes much to the flow of oil revenues from neighboring countries into Dubai investments, and the current oil boom in the region underpins the strength of trade in the domestic economy.

Thus the future direction of the Dubai property market is inextricably linked to the price of oil. If the price goes down then within six months Dubai property prices will weaken; if black gold maintains its price or goes higher so will Dubai property prices.

Ex-George Soros fund manager Jim Rogers has published a new book, 'Hot Commodities' that has set the world investment community talking. His thesis is that oil production may already have peaked and that the supply/demand equation has shifted in favor of continued high, and possibly much higher, oil prices for the next decade.

If this scenario is proved correct - and Mr. Rogers marshals an impressive array of evidence to back it up - then the outlook for Dubai property prices, and indeed Gulf regional property prices, is very much brighter than most people think at the moment.

Mr. Rogers is generally opposed to houses as an investment in his book - noting a historic overvaluation of property in many global markets. However, he points to an exception in the case of locations rich in commodities which will benefit most from the boom in commodity prices that he anticipates.

There is not room to summarize the argument contained in this excellent new book in this short article. However, Mr. Rogers own commodities index fund is the single-best performing index fund in the world in any asset class since it was set up in 1998; thus far history has proved him completely accurate.

Indeed, if the world has now entered a long bull market for commodities - and Rogers' thesis revolves around the idea that equities and commodities are inversely related and that such a bull market started in the late 90s - then Dubai property will prove to be an excellent investment.

Prices would soar to levels unimaginable today. Could it be that one day an apartment in Dubai will cost more than an apartment in London today? If Rogers is right then it is just a matter of time.