Spotting the winners and losers in Dubai property

Yet within these two broad categories some types of property is always likely to prove a better investment than others.

It is tempting to look at premiums paid in relation to historic original costs as a measure of how different developments compare. But the problem with this approach is that historical guides do not always form the best means of establishing a future trend, although this may be some help.

Instead, the Dubai property buyer is counseled to look for relative value between existing projects today. In short, what is undervalued and what is overvalued by the marketplace.

Villas versus apartments

This column has remarked before about the incongruous pricing of luxury apartments more highly than villas in Dubai. Incongruous because most buyers prefer villas if given the choice and maintenance costs are lower.

Meanwhile, villas come with land, and land values have more than doubled in the past two years in Dubai while apartments have none.

Indeed, in most if not all other major cities you pay a premium to live in a house rather than an apartment, not the other way around. Ergo villas might well prove a better buy than apartments in Dubai on fundamental grounds, quite apart from the fact that of the 200,000 odd housing units presently under construction most are apartments, so villas are more likely to have a scarcity value.

There is another reason to believe that freehold villas in Dubai are the best buy. If you compare prices per square foot on the freehold villa projects sold to foreigners with the price per square foot of villas in areas available only to UAE nationals then there is a curious anomaly.

Freehold villas underpriced

The price per square foot of villas in places like Jumeirah and Al Barsha - where only UAE nationals can own property - is up to twice as much as in the freehold areas available to foreigners.

Surely one day the UAE nationals are going to notice that the freehold villa compounds are now offering similar facilities to Jumeirah and Al Barsha and decide to bid up the prices.

In fact there is some evidence that this is already happening. Note the advertisements in Gulf News, 'Wanted Meadows and Springs villas, immediate cash'. These buyers are more than likely UAE nationals in the business of local real estate arbitrage.

Perhaps when interest wanes among UAE nationals in the local stock market then funds will start looking for other investment opportunities. And it is hard to see why the price differential between freehold and national-owned villas should persist for very long.