Can affordable apartments continue to deliver good returns?

Nakheel says that 75 per cent of the huge International City - with apartment blocks themed according to nationality - will be handed over by the end of the year, with the balance of the 800-hectare project delivered by mid-2007.

Unlike the Jumeirah Lake villas and The Palm, Jumeriah, this Nakheel project has not experienced lengthy delays. The first building to change hands is a mixed-use block in a China themed cluster in the residential district.

In the International City pricing has been at the 'affordable' end of the Dubai real estate scale. And those who bought early have been rewarded with some substantial capital gains.

Off-plan gains

That is the way with off-plan sales which have proven very good investments globally over the past few years, delivering an increase of 25-50 per cent on the initial price depending on whose figures you accept. To some extent this is compensation for money tied-up in a project that could have been in a bank account, but it is still very good.

Dubai caught on early to the marketing impact of effectively under-pricing units to get the market rolling, and then gradually increasing prices for late-comers attracted, at least in part, by the price rises.

It remains a moot point as to whether the Dubai boom would have grown with the same speed and intensity without the discounting of initial off-plan sales. But logic suggests not, as providing a loss-leader is one of the oldest marketing tricks in the book, and many marketers were themselves among the first to buy in Dubai.

Thus many of the buyers in the International City are likely to be very happy investors. They have property which has grown in value while it was being built. Also the rentals that they would either have paid themselves, or can now charge to others, have at least doubled.

This happy story is bound to encourage copycats. Nothing succeeds like success. But today's buyers have to ask themselves whether this particular party is nearly over, or perhaps half-way through.

Risk, reward

It is perhaps always easier to join a party when one is actually happening than to decide whether it is worth going to one in the first place. However, the risk is perceived as lower once something exists - after all the off-plan buyers could have got their property much later than imagined or at a far lower specification - thus late-comers pay more.

Yet such is the level of demand - especially for affordable homes such as those in the International City - that buying a completed apartment of this type still makes sense. Rental yields are close to 10 per cent on one-bedroom, affordable apartments in Dubai.

But the big question is if you buy off-plan today whether you will do anything like as well as the buyers in the International City. Surely by the time these new projects are delivered the market will have cooled?

But then remember that buyers in the International City also took that risk and have been well rewarded. And those who waited to buy are now paying for their error! This time, of course, it could be different.