Is Dubai property in for a long, hot summer?

Estate agents in Dubai report that the re-sale market has sparked back to life after several dormant months. Possibly the sharp increases in local rental costs are forcing potential buyers to reconsider, and this is still the best reason to take the plunge for any long term Dubai resident.

If you are renting a villa in Dubai, how much rent did you pay last year? $32,000? How much will you be paying this year? $45,000?

Spare a thought for one-bedroom apartment tenants in The Greens. They paid around $11,000 last year and this year $16,000 is the going rate for annual rent.

One way to fix your accommodation cost is simply to buy in Dubai. Hopefully in time your salary will move higher and your property valuation will also rise. What is the downside risk?

First, interest rates may increase although long-term US interest rates are not likely to vary very much from present levels. Second, you could want to move abroad, but then you could take advantage of the high rental costs of Dubai by renting out your property.

Or the market could collapse. But how much would you actually loose then? If you kept your property, rather than selling it at a cheap price, then you would not loose anything as you would just wait for the price to recover in due course.

You would, of course stand to loose even more if you continue to rent - and that loss is guaranteed. In the villa example given above, with rental inflation, we are talking about a guaranteed $300,000 thrown out of the window over five years.

On the one-bedroom apartment in The Greens renting will cost you about $120,000 in lost savings. Unless you are an eccentric millionaire, that is a lot of money.

For buying a house is somewhat akin to a savings policy and rolling up your mortgage payments into an account for a rainy day. If you carry on renting you can be sure of one thing, you will have nothing after years of paying high rents except your happy memories!

This is an investment nightmare, and those who are sitting on the sidelines in Dubai do seem to have started to wake up. Rental increases have been a nasty alarm clock, and this is just the start. For the UAE is a rapidly growing, booming economy and the pressure on existing accommodation is becoming acute.

The pain and anguish of those who have already missed out on the first three years of freehold Dubai property will be nothing compared with the abject despair that they will suffer in the next three years or so.

For the re-sale market is only really just beginning to get going in this city, and the forces of supply and demand could take prices much higher before the inevitable market correction. That means higher rental costs as well as higher house prices.