Rental rises suggest Dubai house prices will increase this autumn

The idea that a property market might crash when it has the highest rental rate growth in the world is clearly absurd. But that is what a few diehard pessimists continue to predict.

Usually these people are bitter because they failed to buy earlier when prices were much cheaper, and hope that somehow their own opinion might cause panic sales and bring the market back to a price that they would be comfortable paying.

Market theory of human behavior recognizes this phase of the cycle where the believers in the market's strength are still faced by a hardy bunch of disbelievers. It predicts that this shows that the market still has more room to run higher, as the disbelievers are still available buyers that just need to be convinced!

It is only when all the players are in the market that you should start to worry about the possibility of a market top. Last summer in the UK, for example, the near universal opinion that housing was the best thing to happen since sliced bread was a bear signal on this view, which has since been confirmed as an accurate one.

This autumn, Dubai residents will sit down to face an unpleasant truth: do they continue to pay high rents, with the almost sure knowledge that rents will go up yet again in 2006? Or do they take one of the tempting new mortgage deals to buy a property?

With world-beating rent rises and a less dramatic rise in house prices the equation has shifted decisively in favour of buying in Dubai. So expect to see more and more people who said they would never buy to take the plunge, particularly if the expected new federal property law answers their legal worries.

Of course, there will always be some people who will never buy in Dubai, and all property markets move in cycles so eventually they may feel justified in staying out of the market.

However, if you add up how much rent that you would have saved by then as a long-term resident then you will probably still be in positive territory, whatever the short-term swings in the marketplace.

For property remains an excellent long-term investment and prices in Dubai are still at a considerable discount to comparable business hubs like Hong Kong and Singapore. But beware: the market may catch you out. Prices could have a lot further to rise, particularly in the mid-range.