Has the demand curve shifted for Dubai real estate?

If you have a graph with a fixed supply and a fixed demand then it is very easy to predict things like house price rises and rental inflation. But in real life nothing stays static for very long, and in a dynamic economy like Dubai change is the only constant.

Demand for property in Dubai is determined by many factors: local consumer confidence, the cost of rental alternatives, population growth, salary increases, foreign buyer confidence, the global real estate market, and even the value of the US dollar.

With so many factors drawing a meaningful projection of future demand is difficult to say the least, and the line you draw today may have shifted by tomorrow.

Let us review these factors one-by-one as for May 10th 2005: local consumer confidence is high, though a stock market wobble last week was a reminder that reality does exist even in Dubai; rental costs continue to rocket, up 25-40% this year; and the population of Dubai continues to grow, with 250,000 new residents last year and huge traffic jams.

Salaries are up by around 6% in the private sector, and 25% for UAE nationals in the public sector; foreign buyers from the UK, Germany and Russia are increasingly active; the global real estate market is looking mixed with the US still strong and the UK, Europe and Australia less so; and the US dollar has rallied a little in 2005 but remains weak compared with the euro and sterling.

On balance the demand curve has definitely shifted, and is now predicting greater demand for property and for longer than previously expected. Property prices are substantially up on a year ago, and so are rentals; only when the two disconnect would you even start to speak of a bubble.

At the same time, multiple project delays are holding up the supply of property - and the supply curve is lower than it was earlier this year. You still have to ask yourself about the many projects that are due for completion in 2007-8 and wonder if this is too much. Or will that be in 2008-9, or 2009-10, by the time delays are factored in?

One thing that any analyst will tell you about real estate is that booms tend to last longer than expected and prices to go higher than forecast. The shifting of supply and demand curves examined above is clearly one explanation for this phenomenon.

You certainly need to be careful about making market judgments based on out-of-date information. This is only too easy if you have your head down working in a demanding job and barely time to glance at a newspaper or news website. It is also tough for foreigners who have only just got off a plane to make sound judgments about the real estate sector in Dubai as opinions will be clouded by their 'experience' of other markets.

On the other hand, the market conditions in place in Dubai for real estate are clearly unlikely to change for the worse anytime soon, and the case for buying is actually getting stronger rather than weaker, particularly for those who have to pay rents in this city.