Dubai and St. Petersburg: a tale of two property markets

The new Russian and Dubai property markets have some broad similarities. Both markets are relatively newly created. Both have benefited from rising oil prices and higher liquidity. Both are largely cash markets with mortgages in their infancy.

Perhaps it should not be so surprising that price trends also look similar. St. Petersburg enjoyed a 200% surge in property prices in the three years to the start of 2005, but so far this year prices have been almost flat, in fact registering a 3% fall.

Likewise Dubai apartment prices are reckoned to have reached a plateau or to have even started to fall back, with one developer in August offering 30% off apartments in one Jumeirah Lake Towers' project, although villa prices are up 20% or more this year.

In both cities the property market has clearly made a lot of progress in terms of valuations. In both places it would be nice to have bought a couple of years ago. But is this now the top of the market - such as definitely seems to have been the case in the UK a year ago - or will prices go higher?

Anyone peering into a crystal ball would probably see oil wells at this point. For the oil price really holds the key to the market this autumn. If high prices hold, and trend higher then property prices still have further to go. If oil prices spike and then collapse, as some commentators, notably Steve Forbes argues, then asset prices will take a hit.

We have been here before. In 1998 oil prices collapsed to $10 a barrel and development projects were cancelled. However, the amount of development in progress was much less then, and foreigners were not allowed to own property.

But who is to say that high oil prices are not here to stay? There has not been a major oil discovery in 30 years, and refinery capacity takes at least five years to install.

Commodity prices may well be in a 20-year bull market, as the like of Jim Rogers suggest, and in that case Dubai property is as safe as houses - and is still under-priced on global comparisons.

Property in London remains five to six times more expensive, and UK incomes are not that different after tax. And if Dubai frames its property law neatly and mortgage offerings boom, so will prices.