Have you noticed Dubai property prices are still going up?

One advertisement for a Dubai apartment tower last week presented readers with the chance to buy before prices went up by 10% on April 1. Now either this is a very clever marketing ploy to get people to sign up to beat a price rise, or this indicates that the Dubai property market is rather stronger than some believe.

A brief glance through the ever-thick pages of the Gulf News property sections, and there are three of them, confirms that price levels are up in 2006. If you look at apartments in The Greens or villas in The Meadows you will find that 10% is about the going rate of house price inflation so far this year.

How can this be explained? Well we are looking at completed property, available for occupation, and not one of the many towers emerging from the ground in the Dubai Marina and Jumeirah Lake Towers district. But this does not explain the advertisement proclaiming a 10% rise for off-plan apartment prices.

New investors

Perhaps there is a second wave of investor interest in the Dubai market now that Gulf stock markets are turning downwards. In classic investment theory a real estate boom will typically accelerate after a stock market crash due to a shifting of funds from one asset class to another in a search for solid value.

It has to be said that Dubai property is still attractively or at most fairly valued, and that does leave some room for speculators to drive prices to more exceptional levels. Yields on Dubai villas of 7.5% compare very favorably with 2-3% available in more mature markets like the UK, and are therefore attractive to investors who will drive prices higher and rental returns downwards.

There is also the case that the oversupply of property in Dubai remains somewhere in the future. At present apartments and villas available for rental are snapped up in days as people are still flooding into Dubai to participate in the economic boom.

This lively rental market again encourages investors, and indeed the upward pressure on rentals is still very clear, despite the 15% Government cap on increases which is widely side-stepped by vacating property and re-letting it. Thus buoyant letting conditions are another support for property prices.

Delivery delays

Constant delays to the delivery of new property also boost the demand for available property, and hence rental and property values. This still represents an upward cycle - and the fall off in demand required to dampen the market is just not evident, even if the market is slower than it was 18 months ago.

The difficult thing for buyers is to know whether to jump in now before prices and rents go higher, or to wait and hope that the real estate market has a correction like the local stock market. But that could turn out to be a long and expensive wait, even if this is the logical and inevitable outcome in the end.